The Narrow Path to a U.S.‑Iran Deal Both sides will have to scale back demands, but their history points to a way to get it done

The prospects of a diplomatic deal ending the war between the U.S. and Iran look dim right now. But Middle East veterans say there is a pathway for an agreement if the two sides want to engage. (…)

If both sides decide the costs of the war are becoming unbearable, they could cut an agreement that stops the fighting while deferring decisions on the toughest issues.

“It is possible that the U.S. will continue to insist” that it must achieve all its goals, “but it is also possible that a more minimalist cease-fire could precede a follow-on negotiation that addresses that fuller agenda,” said Michael Singh, a former U.S. National Security Council director for the Middle East now at the Washington Institute.

One route to a cease-fire deal would be to return to some of the ideas the two sides floated in negotiations in February. Those included pausing Iranian enrichment of uranium for several years and forging a regional nonaggression pact in return for sanctions relief that could be phased in as Iran frees up the Strait of Hormuz.

That would leave huge issues still on the table. The U.S. has said Iran’s stockpile of near-weapons-grade uranium needs to be dealt with as part of a cease-fire deal, yet Tehran may want to keep the material in its hands as leverage. The issue of inspections, Iran’s future enrichment rights and the lifting of remaining sanctions would all need to be handled at a later stage.

“It is very difficult to determine the position of the current Iranian leadership,” said Raz Zimmt, director of the Iran program at Israel’s Institute for National Security Studies. “What is clear is that Iran is interested in a cease-fire, but not at any cost.”

He said at a minimum Tehran would want guarantees of no further U.S. or Israeli attacks. “Ultimately, however, it depends mainly on Trump and whether he is willing to cease fire in exchange for an Iranian agreement to reopen the strait,” Zimmt said.

Washington and Tehran have a history of making negotiations happen in the face of seemingly incompatible demands by quietly shelving some of the most contentious points.

The 2015 nuclear deal negotiated under Barack Obama’s administration built in the time delay by restricting Iran’s ability to enrich uranium for 15 years and imposing 25-year limits on other restrictions. It permitted Tehran to continue enriching uranium, a position that for many years Washington had vehemently opposed, and contained none of the strict constraints on Iran’s missile program that U.S. officials had pledged to deliver. (…)

Daniel Shapiro, a former U.S. ambassador to Israel and distinguished fellow at the Atlantic Council, said the U.S. faces significant pressure from Saudi Arabia and the United Arab Emirates to finish the job of destroying Iran’s military threat now that the war has produced a new cadre of hard-line Iranian leaders seeking revenge.

But Washington may need to accept, weeks into the war, that it cannot force Tehran’s surrender, Shapiro said. “It’s certainly plausible that there is a deal in which each side gets parts of its demands met,” he said.

A deal could aim to stop the fighting and reopen the Strait of Hormuz, he said. Issues like arrangements for Iran to dispose of its nuclear materials could be negotiated later. Others, like Iran’s future missile program and support for regional militias, might remain open indefinitely. In return, Iran would only get partial sanctions relief.

That might bring peace, though it would be fragile.

“Wars tend to end messy,” Shapiro said. “If the pain is sufficient that you just want it to end, you can end with a mushy partial arrangement.”

Why this war then?

Israel?

• Trump Tells Aides He Wants Speedy End to Iran War

(…) The problem is Trump has no easy options for ending the war, and peace negotiations are at a nascent stage. (…)

Trump told an associate that the war was distracting from his other priorities, one of the people said. (…)

Some people close to Trump are urging him to go harder, saying regime change in Iran could be legacy- defining. (…)

“We see ourselves as part of this negotiation as well,” Defense Secretary Pete Hegseth said Tuesday at an event with Trump. “We negotiate with bombs.” Trump said earlier this week that Hegseth and Gen. Dan Caine, chairman of the Joint Chiefs of Staff, were “quite disappointed” by the prospect that the war could be over soon. “They were not interested in settlement, they were interested in just winning this thing,” Trump said. (…)

Meanwhile, in the U.S., the political landscape for Republicans is difficult going into the midterms. On Tuesday, first-time candidate Emily Gregory flipped a South Florida state-legislative seat that includes Trump’s Mar-a-Lago estate. (…) Gregory’s win is especially bruising for Republicans because Trump actively backed Maples.

Elsewhere in the state, Democrat Brian Nathan claimed victory in the West Tampa race for a state Senate seat vacated when Jay Collins, a Republican, was appointed lieutenant governor. (…)

Boca Raton elected its first Democratic mayor in 45 years in March. And in December, Miami elected its first Democratic mayor in nearly 30 years. (…)

• Including off-year elections last year, Democrats have flipped 30 Republican seats since the start of 2025. (WaPo)
• The White House announced yesterday that he will meet with Chinese President Xi Jinping in Beijing on May 14 and 15.
• Trump Says the Energy Shock Will Be Short-Lived. CEOs Paint a Scarier Picture.

(…) But on the stage and sidelines of a global energy conference in Houston, CEOs painted a much bleaker picture: Financial markets aren’t accurately reflecting the gravity of the crisis, the war is crippling the world’s fuel supplies, and the industry’s Middle East operations are at risk, they said. (…)

Executives say signs of distress are mounting. China has banned fuel exports for March. South Korea instated restrictions on driving for gas-powered vehicles. The Philippines is allowing consumers to use dirtier fuels. Laos cut the number of days children attend school to three days a week. Bangladesh and Pakistan have closed universities or moved classes online.

“There are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world and through the system that I don’t think are fully priced in,” Chevron Chief Executive Mike Wirth said. (…)

Even if the U.S. manages to reopen the Strait of Hormuz, they said, it will take a long time for supplies of oil, fuel, plastics, natural gas and industrial gases—all critical to the global energy system and manufacturing myriad daily essentials—to catch up with demand. (…)

Each passing week tankers can’t traverse the narrow waterway, the world loses 70 million barrels of oil, as well as a host of other products vital for chip manufacturing, medical equipment and consumer goods. Executives said they expect governments across Asia to continue taking measures to cap the amount of oil and natural gas they use.

CEOs said the next regions hit would be Europe and the U.S. West Coast. California imports roughly 75% of its oil, about 20% of its jet fuel and 10% of its gasoline—much of that coming from Asia and the Middle East. California is poised to see fuel shortages if the Strait remains closed in coming weeks, they said.

Asian refineries are running through the crude in their storage tanks and are expected to start cutting production soon. The oil and fuel supplies that California depends on are on track to become harder to find in coming months, said Andy Walz, who runs Chevron’s refining, pipeline and chemical businesses.

“We’re scrambling to find other solutions,” Walz said. “Some countries are releasing strategic oil reserves, like Japan, Korea and the United States. But at some point, those things are going to be gone.” (…)

• The other Strait of Hormuz shock Disruption to commodities far beyond oil and gas will have a long-lasting impact

The damage that could be done to global energy markets by closing the Strait of Hormuz was long anticipated (except, perhaps, in the Oval Office). Less well understood was the fact that the waterway is a vital artery, too, for chemicals, metals and fertilisers.

Disruption to shipping is affecting sectors from AI and semiconductors to mining and food production, compounding the energy shock. And, as with energy supplies, upheavals could persist beyond the end of US and Israeli strikes on Iran.

Take helium. Qatar accounts for about one-third of global supplies of the gas, a byproduct of natural gas production at the vast Ras Laffan field. Not only are exports blocked through the strait but Ras Laffan’s infrastructure has suffered long-lasting damage from Iranian retaliatory strikes.

This is bad news for the semiconductor industry, which uses helium to cool wafers during manufacturing; Taiwan and South Korea get the majority of their supplies from Qatar, whose high-purity helium is not easily substituted. Helium is also important for fibre optics, defence manufacturing and medical imaging (the gas cools MRI scanners).

Semiconductor manufacturing is hit, too, by the disruption to sulphur, of which the Middle East accounts for about 45 per cent of global exports. Sulphuric acid is used for cleaning wafers — and is essential, too, for mining, in the leaching of copper, cobalt and nickel. All three metals are important, in turn, for making batteries for electric vehicles — and even before the Iran conflict, tech and EV demand was creating a sulphur supply squeeze.

The biggest user of sulphur, though, is the fertiliser industry, in phosphorus fertilisers. Even more significant for the global food industry, Gulf states are important sources of urea and ammonia for the nitrogen fertilisers that underpin about half of global food production. Blockages in the strait are leading to surging urea prices and fertiliser shortages, just as the northern hemisphere planting season begins.

Some economists warn that prolonged disruption could create worse problems than Russia’s full-scale invasion of Ukraine in 2022. Some countries have reserves of some of these commodities, but the longer the conflict persists, the more these will be depleted.

Alternative suppliers also exist, but competition is driving up prices. So just as the Ukraine conflict did, the Iran war is likely to reshape trade dependencies. (…)

Across the world, though, the combination of the energy shock and commodity shortages increases the risk of stagflation. And now that Iran has tested its capacity to close the strait — and understood how potent a weapon this can be — it may be tempted to do the same again should new tensions arise.

After reportedly allowing a handful of “non-hostile” vessels to transit the strait after paying undisclosed fees, Iran has hinted it may seek “tolls” in future, adding permanent costs to global supply chains. Industry will need to diversify and find alternative suppliers and supply routes. But some choke points are hard to entirely de-risk — and the Strait of Hormuz is one of them.

• United Airlines’ CEO said airfares may need to climb another 20%, even after double-digit increases in recent weeks, to offset rising fuel costs.

US inflation will surge to 4.2% on energy shock, warns OECD Middle East war to push American price growth to ‘highest in G7’

(…) Rising pressure on consumers would hurt US economic growth, which is expected to slow to 2 per cent this year and 1.7 per cent in 2027, the OECD said. Global growth is forecast to slow from 3.3 per cent last year to 2.9 per cent in 2026, before picking up to 3 per cent next year. (…)

“A prolonged period of disruption could also result in the emergence of significant energy shortages that would lower growth further,” the OECD found. (…)

GDP Growth                         CPI Inflation

 

The OECD’s outlook for US inflation is markedly above that of the Fed and many private sector forecasters, partly because it is expecting a more persistent energy price shock and has forecast an ongoing impact from last year’s US tariff increases.

It also judges the US economy to already be tight because of lower immigration. The OECD reports an annual average for inflation, rather than focusing on the fourth quarter, as some other economists do.

The OECD said that in a “downside scenario”, with oil prices hovering at $135 a barrel in the second quarter, global output could be 0.5 per cent weaker than the organisation’s baseline prediction, while consumer prices would be nearly 1 per cent higher. (…)

U.S. Import Prices Climbed in February Overall import prices rose 1.3% in February, higher than the upwardly revised 0.6% increase in January

That result was more than the 0.6% increase expected by a consensus of economists polled by The Wall Street Journal. Year-on-year prices were up 1.3%, the BLS said.

Import prices exclude duties, such as tariffs imposed on imports by the Trump administration, as well as transportation costs.

Petroleum import prices increased 2.5% in February, while prices for nonpetroleum imports were up 1.2%, the BLS data showed.

More important stuff from the BLS release:

Prices for nonfuel imports rose 1.1% MoM in February, following an increase of 0.8% in January and 0.2% in December. That’s 8.7% annualized in the last 3 months, 11.5% in the last 2 months.

Higher prices for imports were driven by

• capital goods;
• nonfuel industrial supplies and materials;
• consumer goods excluding automotives;
• foods, feeds, and beverages; and automotive vehicles, parts and engines.

Or just about everything…

Nonfuel import prices advanced 2.5% YoY 12-month basis, the largest increase since +2.9% in October 2022.

Ex-food and fuel: +1.2% MoM in February after +0.7% and +0.3% in the previous 2 months. That’s 9.1% annualized in the last 3 months, 11.5% in the last 2 months.

Retail goods inflation will soon accelerate:

If you missed the latest PPI release:

The details are in the March 19 Daily Edge.

Prepare for bad surprises as Ed Yardeni illustrates. Note that nothing from the war with Iran is in these numbers.

BTW, the FOMC’s SEP sees core inflation slowing from 2.9% in 2025 to 2.7% in 2026. It was 3.1% in January.

We sure need higher productivity. Yet:

Nonfarm productivity was revised down by 1.0pp to +1.8% in Q4 (quarter-over-quarter annualized) and the year-over-year rate was revised down by 0.3pp to +2.5%. Since 2019Q4, labor productivity has grown at an annualized rate of 2.1%. (GS)

Iran War Is Pushing Consumers to Break Up With Fossil Fuels

(…) Now, a used electric car showroom in San Francisco suggests the tide is turning again. As gasoline prices climb — hitting $6.81 a gallon at a nearby station on Wednesday — a flurry of drivers are making appointments to check out Ever’s lightly used EVs, many priced under $30,000. (…)

Ever is just one dealership, but signs of a shift are playing out across the world. In Southeast Asia, buyers are flocking to Chinese EV giant BYD Co.’s stores, while electric rickshaws are selling out in Pakistan. A shortage of cooking oil in India is driving a run on electric stoves. From Germany to Nigeria, interest in rooftop solar is surging. And in the UK, some homeowners are taking the plunge on expensive heat pumps. (…)

For many, the conflicts in Iran and Ukraine have driven home a harsh reality: the only path to energy security is going electric. (…)

At the same time, though, the Iran war will put a powerful impetus behind green alternatives to oil and gas at almost the precise moment when policies meant to spur decarbonizing technologies had been on the retreat, particularly in the US. With one major difference: The current acceleration of renewable-energy options is largely happening because “they are also homegrown, domestic energy sources,” International Energy Agency Executive Director Fatih Birol told reporters in Sydney on Monday. “The main driver will not be climate change, the main driver will be energy security.” (…)

“A switch was flipped,” said Janik Nolden, chief executive officer of Solarhandel24, which sells solar panels. As temperatures remain chilly in March, calls from prospective buyers have tripled and sales so far have more than doubled from the previous month. (…)

High fuel prices in Europe are also sparking a new wave of interest in EVs. In the UK, car site Autotrader recorded a surge in EV inquiries since the first attacks at the end of February. Leads — expressions of interest passed on to dealers — are up nearly 30% for new electric cars since the beginning of the war, the company said.

In Denmark, used EV searches on Bilbasen, a major online car marketplace, have jumped by as much as 80,000 a week, according to Jan Lang, a marketing executive at the company. That’s more than what the site experienced after the Ukraine war.

[In India], the delays, rising prices and fears of shortages sparked a run on induction stoves. Online sellers on Amazon saw daily sales increase by 30 times, while those on Flipkart rose fourfold, according to local media reports. “We are out of supply but hope to bring back the supply soon enough,” Venkatesh Vijayaraghavan, CEO of cookware brand TTK Prestige Ltd., reassured customers on March 14. (…)

In neighboring Pakistan, solar took off after the Ukraine war. Now, signs are emerging that the latest conflict is hastening the nation’s transition to EVs after the price of gasoline jumped more than 20%. (…)

In Nigeria, tens of millions of people use gasoline-powered generators for electricity. As fuel prices have risen, there’s been a rush for rooftop solar, though the high upfront cost remains a barrier for many. (…)

American online searches for electric cars rose 20% in the first week of the war and dealers have reported more inquiries from buyers. (…)

 

Still, US carmakers are sticking to their decisions to scale back on EVs even as demand grows in the rest of the world. “It takes four to six months of sustained high oil prices before people start to change their car-buying preferences,” General Motors Chief Financial Officer Paul Jacobson said at a conference last week. “I don’t think we see that, and we certainly don’t see it today.” (…)

Big Returns From AI Investments Are Here, CFOs Say Executives at WSJ’s CFO Council Summit say they are seeing efficiency and productivity gains

Speaking at The Wall Street Journal’s CFO Council Summit in Palo Alto, Calif., finance chiefs from the tech, retail and financial services sectors said their companies are seeing big gains in efficiency and productivity—in some cases worth millions of dollars—from their investments in generative AI. Nudging employees to embrace AI also has yielded new ideas about how to accomplish time-consuming tasks, CFOs said.

Finance chiefs say they are playing a leading role in their company’s AI transformation efforts, evaluating performance, pushing for productivity gains and clearly articulating the value to reluctant employees.

“It’s about ensuring they understand that AI is not going to take your job. People who use AI are going to take your job if you don’t become a power user and understand the value,” Gina Mastantuono, ServiceNow’s president and CFO, said about employee messaging on the topic.

At ServiceNow, AI investments have produced savings worth $355 million, according to Mastantuono. The software company reinvested about two-thirds of those savings, and let about $125 million fall to its bottom line, she said. ServiceNow in 2025 earned $1.75 billion, up 23% from a year earlier.

Shopify said last year in an employee memo that it wouldn’t hire new employees unless managers prove that AI couldn’t do the job, and that AI would be part of employees’ performance reviews. “In order to be, among other things, really successful here, you have to use AI,” CFO Jeff Hoffmeister said, discussing the memo at the event.

Over the last three years, Shopify has held its head count relatively flat, Hoffmeister said. Annual revenue growth over that period has hovered around 30%. The company saw a nearly immediate boost to product innovation after it sent the memo, he said. (…)

At Levi Strauss, a lower-ranking employee created an AI agent to help the company input wholesale orders. Using the agent, Levi’s can finish inputting certain orders within minutes, whereas it used to take days, Chief Financial and Growth Officer Harmit Singh said. The agent also has a much higher accuracy rate, he said.

Employees who previously inputted orders are now focused on collecting receivables, Singh said. “They are upskilling,” he said. (…)

• How Might AI Change the Workplace? Evidence from Corporate Executives

In this paper, we [Atlanta Fed] survey nearly 750 financial executives (“CFOs”) to gather novel data about the use of AI at their firms, which allows us to document new findings about how AI usage has affected and is expected to affect productivity and the size and composition of the workforce for the typical firm adopting AI. (…)

Our data focus primarily on the effects of using AI for the typical company in the economy, shedding light on the early diffusion of AI across firms and its implications for productivity and workforce outcomes, rather than on the relatively small set of firms responsible for developing AI technologies or building large-scale AI infrastructure.

We find that more than half of companies have already invested in AI, but adoption varies widely, with many smaller firms only beginning to invest in 2026. Obstacles to investing in AI include lack of workforce training, a belief that AI technology is not yet sufficiently mature to be beneficial, and concerns about privacy.

Among companies that invest in AI, small firms invest somewhat more intensively per employee than do large firms. Small companies predominantly incur AI-related operating expenses (such as subscriptions to use AI software); large companies also have substantial operating expenditures, but also spend on hardware and internal development to tailor AI tools to their own company needs.

The productivity analysis yields several new findings. First, CFO-reported (that is, perceived) improvements in labor productivity due to AI are substantially larger than the revenue-based productivity gains implied by observed changes in revenue and employment due to AI. This wedge—likely reflecting delayed output realization and quality improvements that are not yet captured in measured revenues—aligns with the classic “productivity paradox,” whereby transformative technologies are widely viewed as important well before their effects are fully reflected in measured productivity.

Second, we find that implied revenue-based labor productivity effects in 2025 are positive, display meaningful sectoral heterogeneity, and are expected to roughly double in 2026. In 2025, firms in high-skill services—particularly finance—experience the largest gains, with implied annual labor productivity growth of about 0.8 percent. Firms in low-skill services, manufacturing, and construction see smaller but still positive gains of roughly 0.4 percent.

These effects are expected to strengthen in 2026, with the largest anticipated increases again concentrated in high-skill services and finance, with implied productivity gains exceeding 2 percent.

Third, we decompose implied labor productivity gains to assess the role of capital deepening (i.e., increased capital/labor) versus other mechanisms driving AI-related revenue growth per employee. We show that at the typical firm, only a small portion of near-term labor productivity gains are driven by capital deepening, reflecting the early stage of AI adoption and the fact that much AI spending—particularly among smaller firms—takes the form of operating expenses rather than capitalized investment.

As a result, residual labor productivity, which we refer to as revenue-based TFP (total factor productivity), accounts for the bulk of observed productivity gains and captures potential improvements in efficiency and product quality, as well as changes in intermediate input use or markups. (…)

We find that productivity gains are most closely associated with innovation- and demand-oriented channels rather than cost reduction alone. In particular, motivations related to developing new or improved products and services, and
reaching or serving customers more effectively, are the strongest and most consistent correlates of both contemporaneous and expected future revenue productivity gains. (…)

Our central finding is that, in the near term, AI has not led—and is not expected to lead—to meaningful reductions in aggregate employment. The overall employment effects are small. In particular, firm-size-andsector-weighted aggregate employment is expected to decline by less than 0.4% due to AI in 2026.

At the same time, employment responses are heterogeneous across firm size: large companies expect to shed workers due to AI adoption, whereas smaller firms anticipate modest employment growth associated with AI. (…)

Over the next three years, the share of routine clerical employment is expected to decline by more than 2 percentage points (mostly among large firms), with partially offsetting increases in skilled technical roles (e.g., engineers, data analysts, or scientists) and other positions (mostly among small firms). Thus, the reallocation of the labor force may occur less within-firm and more across the economy. (…)

Office and administrative support roles exhibit the most negative exposure, consistent with the automation of routine clerical activities such as data entry. In contrast, many professional, technical, and sales-related occupations are more frequently described as being enhanced by AI tools, suggesting complementarity with analytical and decision-oriented tasks. (…)

• Companies Say the Risks of ‘Open’ Artificial Intelligence Models Are Worth It Tech leaders say open models are easier to customize, cheaper to run, and security risks are manageable

Nvidia is mobilizing an effort to create “open” artificial intelligence models that make their code publicly available and provide an alternative to proprietary giants such as OpenAI and Anthropic.

The Nemotron Coalition will advance development of frontier-level foundation models through shared expertise, data and compute, Nvidia Chief Executive Jensen Huang said Monday. (…)

Nvidia said the first model built by the coalition will underpin its coming Nemotron 4 family of open models. The coalition will support transparency, collaboration, sovereignty and broader access to intelligence, “ensuring the future of AI is shaped with the world and built for the world,” Huang said.

To date, proprietary developers have largely been in the vanguard of creating frontier models. But open model developers have been closing the gap, led by companies such as Mistral. Open models are generally free for users to download and modify. True open-source models allow full access to training data and code, while open-weight models share the numerical parameters, or “weights,” that underlie them.

Perplexity has gained attention with its AI agent Computer. And early last year, China’s DeepSeek impressed fellow engineers and computer scientists, including Huang. Other open models from China, such as Alibaba Cloud’s Qwen family, have impressed as well, although the models from China have stirred security and governance concerns.

Mistral said Tuesday it was introducing Forge, a system that enterprises can use to build frontier-grade AI models grounded in their proprietary knowledge.

Companies at Nvidia’s annual GTC event this week said open models played crucial roles in their AI initiatives. Leaders from Capital One, ServiceNow and CrowdStrike said they appreciated open model strengths such as customizability and lower cost, even as they grappled with the challenges of making them secure.

So far, proprietary developers have set the standard for frontier models. Now, the market’s emphasis is moving to inference, or the use of trained models by businesses and other users. When it comes to business applications, large and expensive cutting-edge frontier models aren’t always the best tool for the job.

As inference takes off, business demand is growing for smaller, customized and lower-cost models, and that is creating a new opening for the open approach.

Most AI architectures have room for both open and closed models and often assign them different functions.

“At the end of the day,” CrowdStrike Chief Technology Officer Elia Zaitsev said, closed models are “general purpose and very effective, but they are not customizable to specific use cases or niche domains.” (…)

Zaitsev said that thus far much of the open model innovation has come from Chinese companies. They are innovative, but using them poses something of a supply chain risk, he said. For example, they might create a “back door” that an external adversary could take advantage of, he said.

At Capital One, Milind Naphade, head of AI foundations, said using open models like Nvidia’s Nemotron and OpenAI’s GPT-OSS gives the company more control and better performance thanks to the ability to customize on its own data.

“It’s a level of customization that’s simply impossible with…fine-tuning that can be done on closed models,” Naphade said.

Capital One still uses closed models for use cases such as employee productivity, but for customer-facing tools, it opts for open models, according to Naphade. (…)

FLASH PMIs

Global Business Activity Slows as Iran War Weighs Prices for inputs spiked due to soaring energy prices, but costs for customers also jumped as selling prices reached a more than 3½-year high

Data firm S&P Global said Tuesday that its U.S. composite purchasing managers index fell to an 11-month low of 51.4 in March, compared with 51.9 in February.

“The flash PMI survey data for March signal an unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Prices for inputs spiked due to soaring energy prices, but costs for customers also jumped as selling prices reached a more than 3½-year high, S&P said. Employment fell for the first time in over a year, while supply delays were more widely reported than any time since October 2022, the survey responses said. (…)

Input-cost inflation in the eurozone rose at its fastest rate in just over three years, while the overall level of output growth was dragged by a deterioration in new orders, S&P said.

Meanwhile, activity expanded at its slowest rate since October 2022 in India, which relies heavily on energy imports that transit through the Strait of Hormuz, the waterway that has largely been closed as a result of the conflict. Before the war began, 60% of India’s liquefied petroleum gas—used for cooking in households and restaurants—came from the Gulf, according to Capital Economics.

Input costs climbed to a near four-year high, with a range of items reported as up in price including aluminum, chemicals, electronic components, energy, food, iron ore, leather, oil, rubber and steel, S&P said.

Australia recorded the strongest fall in output since 2023, while Japanese activity also slowed, PMI data showed.

In the U.K., activity fell to a six-month low, as squeezed margins led to a further increase in job shedding, the survey showed. Unemployment has already inched higher in recent months, according to official data. (…)

Growth in the eurozone’s manufacturing industry accelerated in March—with weakness in the 21-nation currency area coming instead from the services sector—according to S&P’s PMI data. However, some of that manufacturing boost could have come as firms sought to get ahead of predicted future supply-chain shocks. (…)

Firms in the U.S. also appeared to be heeding warnings over the outlook.

“Companies are meanwhile building safety stocks amid concerns that the war may lead to more protracted supply issues and price rises while trimming head counts to reduce overheads,” said S&P’s Williamson. (…)

More from S&P Global:

USA: The slowdown was led by the service sector, where business activity grew at the weakest pace for 11 months amid a weaker gain in in new work, the latter driven by a steepening rate of loss of export sales. Slower growth and falling orders, especially in terms of exports, were commonly blamed on subdued confidence among both consumer and business customers.

A reticence to commit to additional projects and orders amid the increased geopolitical uncertainty caused by the war in the Middle East reportedly compounded existing policy-related concerns over federal spending.

There was better news from manufacturing, where output growth accelerated slightly as new orders rose at their fastest rate for five months. Export orders stabilized after eight months of decline. Panelists indicated some softening
of the tariff impact on order books, as well as instances of purchasing safety stocks, with factories and their customers keen to secure prices and ensure supply availability.

Companies are reporting a hit to demand from the additional uncertainty and cost of living impact generated by the conflict. Travel, transport and tourism related issues are compounded by financial market jitters and affordability constraints, notably including concern over the impact of higher interest rates, surging energy prices and supply chain delays.

The PMI data are indicative of GDP rising at an annualized rate of just 1.0%, with a modest 1.3% expansion signalled for the first quarter as a whole.

The survey’s price gauges meanwhile point to consumer price inflation accelerating back to around 4%, hinting at a growing risk of the US moving into an environment of stagflation.

 

 

FYI: yesterday, the Atlanta Fed’s GDPNow projection for Q1 real GDP growth was lowered from 2.3% to 2.0%. 

Eurozone: The softer expansion of output was registered amid a renewed reduction in new orders, the first in eight month.
The decline was centred on services as manufacturing new orders continued to rise.

New export orders (which include intra-eurozone trade) decreased modestly again, despite a near-stabilisation of manufacturing new export business. New orders from abroad have now fallen in each of the past 49 months.

 

Japan: The slowdown in overall growth momentum coincided with a weaker increase in overall new business. The latest upturn in composite new work was marginal and the weakest in three months. Underlying data showed that rates of new order growth slowed notably across both the manufacturing and service sectors, with the latter recording the softest upturn in sales since last October.

Similarly, total new export business expanded at a modest rate that was the weakest seen over the current three-month period of growth. This reflected a softer rise in overseas demand for goods, as foreign demand for services increased at a slightly faster (but still marginal) pace.

Productivity Growth Revised Down; Unit Labor Costs Revised Up (Goldman Sachs)

Nonfarm productivity was revised down by 1.0pp to +1.8% in Q4 (quarter-over-quarter annualized) and the year-over-year rate was revised down by 0.3pp to +2.5%. Since 2019Q4, labor productivity has grown at an annualized rate of 2.1%.

Unit labor costs—compensation divided by output—were revised up by 1.6pp in Q4 to +4.4% (quarter-over-quarter annualized), and the year-over-year rate was revised up by 1.1pp to +2.4%.

Compensation per hour was revised up 0.6pp to +6.3% in Q4 (quarter-over-quarter annualized), and the year-on-year rate was revised up by 0.9pp to +5.0%.

Our wage tracker now stands at +3.7% annualized in Q4 and +3.7% year-over-year.

Large revisions!

The Fog of Diplomacy in Iran Trump and the regime test each other while ground troops head over.

The WSJ Editorial Board:

(…) Mr. Trump’s incentive is to calm markets with news of diplomatic progress. The regime’s incentive is to deny, deny, deny and keep markets roiled. In that sense Mr. Trump won this bout, driving a steep decline in the price of oil on Monday. This is what he does—offer relief as the trading week begins and bring the pain as it ends. The new deadline to ward off escalation is Friday, when some 2,200 Marines are due to arrive in the region.

They may be joined later by another Marine Expeditionary Unit as well as command elements and a combat brigade from the Army’s 82nd Airborne. Call it Trump-style diplomacy: One hand extends while the other visibly winds for a punch. Will this regime again challenge Mr. Trump to deliver on his threat? And was that the President’s plan all along?

The two sides remain far apart. Mr. Trump reiterates his prewar demands, including in a 15-point plan leaked to the press Tuesday: Dismantle what’s left of the nuclear program, hand over all enriched uranium, and limit the missile program. Iranian officials reiterate their prewar refusals and demand guarantees, reparations, the expulsion of U.S. forces from the region, and the payment of tolls to transit Hormuz, an international waterway. All are nonstarters, which explains the skepticism of Arab and Israeli officials.

Mr. Trump said his envoy Steve Witkoff is speaking to a “top person” in Iran, widely believed to be Mohammad-Bagher Ghalibaf. He’s the Parliament speaker, former mayor, police chief and Revolutionary Guard commander, and consummate opportunist. Some see his many political reinventions and trail of corruption allegations as signs Mr. Ghalibaf is the flexible type the U.S. has been looking for. Others see a brutal regime insider with no demonstrated desire to change Iran’s policies.

It isn’t certain that Mr. Ghalibaf can even speak for Iran’s regime. He’s one of the more senior officials left, but will the Islamic Revolutionary Guard Corps follow his lead? How much room does he have to maneuver? Part of the reason to explore talks may be to find out.

On Tuesday Mr. Trump said Iran’s regime gave the U.S. an unspecified “present,” as it had promised, related to oil and gas. This showed “we’re dealing with the right people,” he said. But he also gave them a present by easing U.S. sanctions on the export of Iranian oil.

The next step is to arrange a meeting, if Iran even wants one. The regime may feel time is on its side; the Strait of Hormuz is blocked and Mr. Trump backed down on Monday. But before you blink it will be Friday again, and with President Trump you never know what he’ll be saying then. He may not know himself.

But we trust he knows that giving in to the regime now would leave an Iranian gun to the world’s head, a proven veto on energy flows. The world—read: China and Russia—might conclude he couldn’t tolerate the political pressure at home from high oil prices.

“One bullet shot at one of our men or ships, and I’d do a number on Kharg Island,” Iran’s oil-export terminal, Mr. Trump said. “I’d go in and take it.” That was in 1988. Now he’s President, and history and the world want to know if that boast is still operative.

But:

The leaders of Saudi Arabia and the United Arab Emirates are lobbying the president to stick with the war until Iran is sufficiently weakened that it won’t pose a threat, people familiar with their positions said.

Saudi Arabia isn’t comfortable with a 15-point plan Arab mediators said the U.S. presented to Iran to resolve the conflict, which would trade full sanctions relief for Iranian concessions on every major point of disagreement with the U.S., according to a draft shared with The Wall Street Journal. (…)

Saudi Arabia and the U.A.E. fear Iran will be left with enduring influence over their energy exports and security as a result of the war. (WSJ)

And:

The Pentagon is planning to deploy a brigade combat team from the Army’s elite 82nd Airborne Division to the Middle East to support operations against Iran, the WSJ reported, citing two US officials. A written order to deploy the unit, made up of roughly 3,000 soldiers, is expected in the coming hours, the officials said.

The decision to put boots on the ground in Iran hasn’t been made yet, the officials said. (Bloomberg)

The NYT:

Taken together with some 4,500 Marines already en route to the region, the deployment of the elite Army forces brings the total number of additional ground troops dispatched to the war zone since the conflict started to nearly 7,000, and marks a new escalation in the conflict.

About 50,000 troops are assigned to the overall operation the Pentagon calls Epic Fury, from across the Middle East, Europe and the United States.

Hemingway might say that the tragic mess with boots on the ground happens suddenly, then gradually. Ask Lyndon Johnson…

• Iran refuses peace talks with Trump’s ‘backstabbing’ negotiators JD Vance being touted as preferred mediator as Tehran turns on Steve Witkoff and Jared Kushner

(…) Speaking in the Oval Office on Tuesday evening, Mr Trump said Mr Vance was among “several people” taking part in negotiations. “They’re [Witkoff and Kushner] doing it, along with Marco, JD, we have a number of people doing it,” he said. (…)

“Vance is preferred,” a Gulf source said of the Iranians. “They don’t want to work with Jared and Witkoff because they stabbed them in the back.”

A second Gulf source said the Iranians believed Mr Vance would stick to his word and that his participation is seen as the appropriate seniority for negotiations with Mohammad Bagher Ghalibaf, the parliament speaker.

Mr Vance is widely viewed as a sceptic of the US president’s “Operation Epic Fury”.

One diplomatic source said Tehran had lost trust in Washington’s delegation and was sceptical of Mr Kushner and Mr Witkoff’s seriousness about ending the conflict.

The US launched strikes on the Iranian capital killing Ali Khamenei, Iran’s supreme leader, two days after wrapping up negotiations in Geneva.

Several Gulf states had left those talks convinced a deal to avoid a full-blown conflict was possible. (…)

They’re Rich but Not Famous—and They’re Suddenly Everywhere The number of Americans worth eight or even nine figures is up markedly. It’s transforming the U.S. economy.

The number of Americans worth tens of millions and hundreds of millions of dollars has boomed in the past few decades, thanks to a rising stock market, lucrative private investments and swelling valuations for small and midsize businesses. This growing class is now a huge force in the economy, driving the demand for everything from lavish hotel rooms to private jet travel. (…)

There are about 430,000 U.S. households worth $30 million or more, according to an analysis of Federal Reserve data by Zidar. Within that, there are about 74,000 worth $100 million or more. Over the past few decades, the growth in the number of very rich households has surpassed general population growth. (…)

 

Because there are so many more multimillionaires, products and services that cater to this group are also booming. Hermès, Brunello Cucinelli and Ferrari all recently reported strong sales from the richest customers, while some companies that target the merely well-off are facing flagging demand. Since the start of the pandemic, demand has picked up for the most expensive homes and the highest-end travel. (…)

Sports Betting Is Everywhere, Especially on Credit Reports

Since 2018, more than thirty states have legalized mobile sports betting, leading to more than a half trillion dollars in wagers. In our recent Staff Report, we examine how legalized sports betting affects household financial health by comparing betting activity and consumer credit outcomes between states that legalized to those that have not.

We find that legalization increases spending at online sportsbooks roughly tenfold, but betting does not stop at state boundaries. Nearby areas where betting is not legal still experience roughly 15 percent the increase of counties where it is legal.

At the same time, consumer financial health suffers. Our analysis finds rising delinquencies in participating states, with spillover effects across state lines.

What is more, even though the share of people taking up sports betting after legalization is small (roughly 3 percent of the population), overall credit delinquency rises by about 0.3 percentage points. Our findings suggest that sports betting can have dramatic implications for household financial stability. (…)

The chart below shows the impact of legalization on the share of the county population with any account ninety or more days past due, with the blue line showing the direct effect and the gold line showing the spillover effect.

Sources: New York Fed Consumer Credit Panel/Equifax; authors’ calculations.

Following legalization, delinquency rose steadily in legal counties and surpassed half a percentage point three years after legalization, representing a noticeable deterioration in repayment performance from a baseline of 10.7 percent.

Spillover counties follow a similar pattern with a smaller magnitude increase in delinquencies, suggesting that, as with betting activity, the financial consequences extend across state lines.

In our Staff Report, we show that the overall increase in delinquency is driven by borrowers under the age of 40. Following legalization, the share of under-40 borrowers who are delinquent rises by 1.02 percentage points for credit cards and 0.55 percentage point for auto loans.

Our consumer credit analysis explores the overall impact of sports betting on the full population without differentiating between those that gamble and those that do not. However, the spending analysis shows that only around 3 percent of the population newly takes up sports betting after legalization.

If we instead focus on only the 3 percent of people who newly take up sports betting after legalization, the implied increase in delinquency rate conditional on take-up is 10 percentage points, roughly a doubling from the baseline rate. (…)

AI Demand Is Shielding China’s Booming Trade From War Shocks

An investment boom in artificial intelligence has kept China’s trade volumes on a path to exceed last year’s record levels, offsetting disruptions from higher oil prices in the weeks after war broke out in Iran.

Nearly 20 million containers moved through Chinese ports in the first three weeks of March, an increase of more than 6% from the same period a year ago, according to data released on Monday by the Ministry of Transport.

While moderating from the 12% gain seen in the first nine weeks of the year, the pace of increase indicates that aftershocks from the conflict in the Middle East have yet to become a serious drag on Chinese trade. (…)

Strong global demand driven by investments in data centers and power equipment is likely helping ward off external threats for Chinese companies. As evidence, economists point to a strong correlation between China’s outbound shipments and its imports from South Korea because of the deep integration between the two countries’ supply chains.

South Korea’s exports to China recorded a 69% jump in the first 20 days of March, with its overall semiconductor sales abroad surging 164%. The pickup means China’s overseas shipments probably also continued to climb after rapid growth seen in January and February. (…)

Overseas shipments soared 22% in the first two months of 2026 from a year ago, blowing past the consensus forecasts of economists. AI-related demand was already in play, as chips exports spiked 73%.

ANZ estimates that China’s AI-related exports accounted for almost 19% of the total in 2025. They mostly consisted of intermediate goods such as semiconductors, with China increasingly integrated into the global AI supply chain, ANZ analysts said in the report. (…)

Economists at the British bank estimate China accounts for more than 30% of global export value in critical AI-linked goods, far above South Korea’s share of around 6%.

“The country is a key supplier of AI manufactured components,” Barclays economists including Jian Chang said in a note. “With a 4.5%–5% growth target and no sign of large-scale fiscal or monetary stimulus, we expect exports to remain a critical growth driver.”

In Washington’s War on Data, the Economy and Public Will Lose

(…) For more than a century, Republicans and Democrats have agreed on the need for objective data to inform their debates.

(…) as New York Senator Pat Moynihan would later put it, “Everyone is entitled to their own opinions, but not their own facts.”

Those common-sense and bipartisan sentiments helped produce a statistical system that became widely recognized as the global gold standard, one that delivers immense value for American citizens for its relatively modest cost, about 0.1% of the federal budget. The categories of data collection are endless — inflation, employment, jobs, wages, trade, housing, crime, population, pollution, disease, investment, consumer spending, food production and so many others — because they are invaluable.

Government officials rely on this data as they make decisions about allocating resources to tackle problems, and as they try to determine whether policies and programs are working. If you think government is inefficient and ineffective now, wait until you see it operate without good data.

Business leaders are even more dependent on this data as they make planning and investment decisions, from retailers figuring out where to locate a store, to farmers and ranchers weighing how much of their production to hedge, to manufacturers deliberating whether to expand their plants.

Nevertheless, the administration has been undermining the integrity of the country’s statistical system by playing politics with it. When, for example, the Bureau of Labor Statistics delivered a downbeat jobs report last year, the president abruptly fired its commissioner. After introducing deep cuts in food stamps for the poor, officials canceled a survey measuring how many people were going hungry. Data on inflation, education, farm wages, police misconduct and federal employee morale have also suffered or disappeared amid staff and budget reductions. (…)

The right way to address such shortcomings is to do what successful companies do: invest in modernization. Shift from expensive phone calls and visits to online responses. Share more data across agencies and incorporate private suppliers to improve accuracy and avoid duplication. Take advantage of automation and artificial intelligence. This would entail significant upfront costs to build a new system while simultaneously maintaining the old — but, done right, it would save money in the long run.

Congress never anticipated an assault on federal data. Only four of the 13 principal statistical agencies enjoy any significant statutory protections, and even those are weak. Legislators should strengthen those protections and provide the resources and oversight needed to modernize the systems.

The Senate should also use its confirmation power to reject nominees who, because of partisan or ideological biases, seem likely to fudge numbers or weaken the integrity of data-collection efforts. It was encouraging to see senators raise concerns about the partisanship of a nominee to lead the BLS, which led the White House to drop him.

There’s another saying that I’ve long lived by in business and government: “In God we trust. Everyone else: Bring data.” But if the federal government makes it so that data can’t be trusted, God help us. (…)

Venezuela’s ‘chief torturer’ takes over the military Longtime spy chief promoted to defence minister as interim president Delcy Rodríguez consolidates power

For a decade, Gustavo González López oversaw Venezuela’s torture dungeons and spy networks. His secret police became a cudgel for strongman Nicolás Maduro. Opponents were disappeared, protesters rounded up and González was sanctioned by the US, EU and UK.

Now, in an attempt to shore up power, the US-backed interim president Delcy Rodríguez has promoted the baby-faced 65-year-old to defence minister.

The move, analysts say, encapsulates the changes to Venezuela’s government since the US whisked Maduro to a Brooklyn jail in January: the same brutal regime, with faces that are friendlier to Washington.

“He signals the continuation of the repressive dictatorship we have been living through. It’s a step in the wrong direction . . . he’s been the chief torturer in charge of political oppression,” said Ricardo Hausmann, a Venezuelan former minister in the 1990s and now a professor at Harvard. (…)

González “knew, participated and contributed to the commission of serious human rights violations and crimes, some of which amounted to crimes against humanity”, the UN wrote in 2022. (…)

“The Americans must have approved for him to get his new position.”

A White House official said: “As President Trump stated, relations between Venezuela and the United States have been extraordinary for us and for the Venezuelan people. We are dealing very well with President Delcy Rodríguez and her representatives.” (…)

Still in place is Diosdado Cabello, the much-feared interior minister who controls the country’s police and paramilitary forces, while his socialite daughter has been elevated to tourism minister.

“Rodríguez obviously doesn’t feel secure enough to strike against Cabello,” Watson said. “In fact, she appears to be cultivating his support.” (…)

Rodríguez is loathed by much of the Venezuelan public, with local pollster Meganalisis reporting her approval rating at 4.8 per cent earlier this month. (…)

Trump last weekend: “There’s automatically a regime change, but we’re dealing with some people that I find to be very reasonable, very solid. Maybe one of them will be exactly what we’re looking for. Look at Venezuela, how well that’s working out.”