US pauses Iran attacks after Trump advised to halt bombing Top military officials say campaign has reached its limit of effectiveness and warn of dwindling stocks of munitions

The official White House line is that “US President Donald Trump is allowing ‘some space’ for diplomacy with Iran” but the truth is more practical:

(…) Senior officials in the Trump administration are reported to have told the president about dwindling munitions stockpiles that could hamper a sustained military campaign in the region.

Axios reported on Sunday that Adm Bradley Cooper, the top US military commander in the region, had told Trump the US military campaign had reached the limits of its effectiveness.

The message was said to affect Trump’s decision to hold strikes on Iran for the first time in nearly two weeks. Cooper told Trump the US had nearly exhausted the list of targets that it had developed to attack in Iran, and without a return to major combat operations there was little point in continuing the bombing campaign, the news website reported.

Tehran said on Sunday it would pause what it called “retaliatory” attacks against US allies in the region. “These [US] attacks continued until two nights ago, but over the past two nights the Americans have stopped their attacks,” said the army spokesperson Mohammad Akraminia. “Our strategy has essentially been retaliatory, we have also halted our retaliatory operations.” (…)

• How Oil Chaos on Four Fronts Drives Wild Swings and Supply Fears

(…) “Diesel and jet fuel markets remain exceptionally tight,” said Josu Jon Imaz, CEO at Repsol SA, one of Europe’s biggest oil refiners. “This situation is driven by the simultaneous disruptions in the Strait of Hormuz, and it is probably more forgotten, what is happening in Russia.”

Even more concerning for the oil market, Ukrainian forces have started widening their attacks on shipping in the Black Sea, a waterway that ships about 20% of Russia’s seaborne flows. Novorossiysk, Russia’s largest port in the Black Sea, halted loadings over the past few days following a surge in Ukrainian attacks in the area.

Over the past week, three ships loading oil at the nearby CPC terminal, the primary export point for crude from Kazakhstan, were attacked — including one of Dynacom’s. So too were two vessels trying to reach the terminal, people familiar with the matter said, leaving shipowners reluctant to call at the port. Oil flows from the port have come to a standstill, cutting almost 2% of global supply at a time the market needs every barrel it can get. (…)

Speaking on condition of anonymity, several traders said they’ve had calls over the past week from oil products buyers in North Africa and parts of the Mediterranean, who previously relied on discounted supply from Russia but were now looking for new sources. Crude buyers in Asia say they’re increasingly hemmed in with what they can purchase given the spate of conflicts, while prices in Europe have jumped after the CPC outage. (…)

Disruptions in the Red Sea are likely to be less pronounced and drawn out as in Hormuz. Saudi Arabia can always divert its exports north thanks to a series of pipelines and the Suez Canal. Some Saudi cargoes are still flowing out of Bab el-Mandeb, in Chinese-owned ships. (…)

Some in the markets fear that prices are just one presidential social media post away from falling back as quickly as they rallied. Goldman Sachs said that its base case for Brent in the fourth quarter is $80 per barrel, but a sustained disruption could see prices exceed $120 — showing how much potential there is for wild swings in the market. (…)

US Flash PMI:

Business activity growth accelerates to eight-month high in July,but selling prices rise at fastest rate for nearly four years

The headline flash S&P Global US PMI Composite Output Index rose from 51.9 in June to 53.6 in July, signaling the fastest growth since last November and a further improvement from the near-stagnation seen in March.

July’s faster expansion was led by services, where business activity growth hit an eight-month high amid stronger new work inflows. Manufacturing output continued to rise, but factories reported the weakest gains in output and order books since March.

Domestic demand drove growth across both services and manufacturing, as exports of goods and services continued to fall in July. Firms cited a lift from FIFA World Cup-related spending, stronger-than-usual July 4th activity and increased investment in sales, marketing and product development. Manufacturers again reported precautionary stock building amid concerns over prices and supply availability linked to the war in the Middle East, though fewer such reports helped explain the slowdown in manufacturing growth.

Business output expectations improved in July to an eight-month high, but prospects diverged by sector. Services firms reported the strongest 12-month outlook since last September, helped in part by lower energy prices, which had previously squeezed customer spending power and lifted interest rate expectations. Manufacturing optimism slipped to its lowest since last October, reflecting weaker demand growth, global trade worries, geopolitical uncertainty, tariffs and high costs.

Employment rose only marginally in July after two months of decline, with modest gains in both services and manufacturing. High costs and an uncertain trading environment restrained hiring and often led firms not to replace leavers, though some companies continued to report difficulties finding staff.

War-related disruptions further intensified supply problems. Manufacturers reported the sharpest lengthening of supplier delivery times since August 2022, with lead times now worsening for 11 straight months as shipping disruption around the Strait of Hormuz and demand for safety stocks compounded tariff-related availability issues.

Input cost inflation rose to its highest since May 2025, as cooler manufacturing cost growth was more than offset by a 14-month high in services. Manufacturers nevertheless continued to report the steeper overall increase. Companies attributed higher costs to elevated energy and shipping prices, tariffs and broad-based supplier price rises.

Selling price inflation also accelerated as firms passed higher costs on to customers, with the overall rise in charges the steepest since August 2022. Factory gate price inflation remained sharp, albeit reduced, while services charge inflation climbed to the highest in just under four years.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“US businesses reported a good start to the third quarter, the ‘flash’ PMI survey data broadly consistent with GDP growing at an annualized 2.0% against a 1.2%pace signalled for the second quarter. The month saw an encouraging return to hiring by companies, with employment rising for the first time in three months.

“However, some of this improvement may prove short-lived as July saw hospitality spend boosted by the FIFAWorld Cup and USA 250 anniversary activities. It was also worrying – though not unexpected – to see manufacturing growth weaken as some of the stock building seen in prior months showed signs of fading. Instead, July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand.

“Events over recent days in the Middle East will have only further exacerbated these supply chain and price worries and raise downside risks to the near-term outlook for the economy, hinting that July’s upturn may not be the startof an improving trend.”

 

El Niño Worsens Plight of Asia’s Rice Belt After War Price Shock

A dry spell is sweeping across Asia’s rice fields, dealing another blow to farmers grappling with steep fuel and fertilizer prices triggered by the war in Iran.

From Vietnam to the Philippines, production of the region’s most important food staple is under threat as a strengthening El Niño prolongs dry weather. That includes India, the world’s top grower and exporter, where the crucial monsoon rains that began in June are running about a sixth lower than normal so far.

Lower harvests risk driving up food prices, fanning inflation at a time when economies are coping with the fallout from the war. Thailand rice prices, an Asian benchmark, recently touched an 18-month high, and the most-actively traded futures in Chicago are up about 40% this year as supply concerns intensify. (…)

Ample global inventories have capped prices until now. But, that support may be shifting. The US Department of Agriculture has trimmed its estimate for season-ending stockpiles and expects production this season to decline for the first time in 11 years. (…)

El Niño typically weakens the summer monsoon in most of South Asia, threatening rain-fed crops such as rice and corn. Drought risks stretch from Pakistan and India through mainland Southeast Asia and eastward to Indonesia and the Philippines, the United Nations’ Food and Agriculture Organization said in late June. (…)

• Economists warn ‘super’ El Niño and oil shock could prop up global inflation

A rapidly intensifying El Niño weather pattern combined with higher energy prices could add 0.3 percentage points to global inflation next year, hitting emerging markets particularly hard, JPMorgan economists said in a report on Friday.

Forecasts currently point to an 81 per cent probability that the current El Niño episode develops into a “very strong” or “super” El Niño by the end of the year and a 97 per cent chance that the conditions persist into next year.

Such an event would rank among the strongest seen in recent decades and raise the risk of disruptions to global food production and supply chains. JPMorgan estimated that a super El Niño on its own would raise global food inflation by about 0.7 percentage points at its peak, with the biggest impact typically occurring four to eight months after the onset of the weather shock.

However, when combined with the Iran war-driven jump in energy prices, which has raised costs of diesel, fertilizer and food packaging, the effect on global food inflation could roughly double to around 1.3-1.5 percentage points.

“The resulting jump in food inflation to a 5 per cent annualized rate in 1H27 would add 0.6 percentage points to global headline inflation, slowing next year’s expected inflation decline by 0.3 percentage points for the full year,” JPMorgan’s analysts said.

Emerging markets in Asia and Latin America would bear the brunt of the impact because food carries a larger weight in consumer baskets and agriculture is generally more weather-sensitive.

India, Indonesia, Brazil and Colombia were identified as particularly exposed, while Taiwan and South Korea also looked vulnerable to food-price shocks, they added.

By contrast, direct El Niño-related food inflation impacts in Europe and other advanced economies are expected to be smaller. Instead, higher energy costs are likely to be the main driver of higher food prices in those countries.

The bank noted that current conditions are more favourable than during previous major El Niño episodes, with global grain inventories adequate, rice stocks in Asia relatively healthy and food inflation currently relatively low.

Still, the combination of a powerful El Niño and a sustained period of high energy prices could create a significant food-price impulse and make food inflation an increasingly important source of divergence between countries and regions.

El Nino: The next supply shock?

Source: Deutsche Bank (via The Big Picture)

Surveys of Consumers, University of Michigan

Wall Street Bulls Are Staring Down $100 Oil, Tariffs, AI Angst

Every bull market has a recurring cast of villains. Oil shocks. Inflation. Rising bond yields. Trade wars. This week, investors had to contend with all of them at once. (…)

Taken together, this week’s shocks challenge an investment case built on resilient earnings, contained inflation and confidence that the AI-spending boom can continue. Whether they prove durable enough to change all that remains an open question.

Higher oil has to feed inflation. Inflation has to alter expectations for interest rates. Higher rates have to tighten financing conditions for companies already in the middle of one of the largest capital-investment cycles in technology history. Each link in that chain takes time, and any of them can break. (…)

EARNINGS WATCH

From LSEG IBES:

132 companies in the S&P 500 Index have reported earnings for Q2 2026. Of these companies, 84.8% reported earnings above analyst expectations and 11.4% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 80% of companies beat the estimates and 16% missed estimates.

In aggregate, companies are reporting earnings that are 8.8% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.5%.

Of these companies, 80.5% reported revenue above analyst expectations and 19.5% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 73% of companies beat the estimates and 27% missed estimates.

In aggregate, companies are reporting revenues that are 2.6% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.2%.

The estimated earnings growth rate for the S&P 500 for 26Q2 is 38.8%. If the energy sector is excluded, the growth rate declines to 35.3%.

The estimated revenue growth rate for the S&P 500 for 26Q2 is 12.6%. If the energy sector is excluded, the growth rate declines to 11.7%.

The estimated earnings growth rate for the S&P 500 for 26Q3 is 28%. If the energy sector is excluded, the growth rate declines to 25.6%.

Beware! These earnings are not operating earnings as they include huge mark-to-market gains. The tally of the impact on S&P 500 EPS:

Q1’26: GOOG: $3.14

             AMZN: $1.42

             META:  $0.66  = $5.22 so S&P 500 operating EPS in Q1 is not $75.03 as reported but $69.81

Q2’26: GOOG: $8.96

With more to come.

Ed Yardeni says that “Removing the MTM gains reduces the S&P 500’s Q1 and Q2 y/y earnings growth rates from 19.0% and 35.8% to 10.6% and 22.3%. Those are still very solid growth rates.”

Indeed but if we only tally the 8 sectors not directly influenced by AI/IT, the Q1 average EPS gain is 9.9% including Financials’ +24.0% quarter.

For Q2, we should also exclude Energy (+120%) and Materials (+36%) which benefit from war shortages. The remaining 6 sectors are expected to grow earnings 6.7% on average, including Financials’ +21.9%.

I know I am pruning out much like many prune out outliers from inflation metrics but we need to make sure what are recurring earnings that this economy is actually generating.

We also need to use normalized P/E ratios in our valuation work.

Trailing EPS are now $311.22 as reported. Normalized EPS (ex-MTM) are $297.04.

Full year 2026 EPS: $340.70e (+28.9%). Normalized EPS (ex-MTM) are $326.52e (+20.4%).

Forward EPS: $372.91e. P/E = 19.9x. Normalized EPS (ex-MTM) are $363.95e. P/E = 20.4x.

Full year 2027 EPS: $405.86e (+16.0%). Vs normalized 2026e EPS: +24.3% (really???).

BTW, if we exclude Energy, Materials and IT, the remaining 7 sectors reflecting the core US economy are currently expected to grow EPS 6.9% on average in Q3 and 10.5% in Q4.

Looking into 2027, Goldman Sachs calculates that the S&P Equal-weighted Index EPS will grow 12% in 2027 after 16% in 2026. GS also sees the median stock EPS growing 12% over the next 12 months.

The equal-weight index is at 16x NTM EPS, 20% lower than the aggregate but still at the high end of its 35-y range:

We can discuss various valuation data. Zerohedge aggregated them all in a single chart: Making history, again?

Ed Yardeni admits that

analysts are displaying symptoms of irrational exuberance in their long-term earnings growth (LTEG) projections, led by those covering S&P 500 Information Technology companies. Currently, S&P 500 LTEG is 25.0%, with the Information Technology LTEG at 41.3%. That’s nuts!

As a result, the S&P 500’s PEG ratio is 0.81, an all-time low, suggesting that stocks are ridiculously cheap, which is ridiculous.

The “exceptional” US economy is producing exceptional profit margins. The ever useful and generous Ed produces this telling chart if you focus on the pink line:

Enthusiasm curbed!

the levels of retail speculative enthusiasm as proxied by flows have tapered off significantly from last year. I suspect leveraged accounts combined with losses in crypto, precious metals, and (more recently) semis have sapped enthusiasm and buying power. [and SpaceX] (Callum Thomas)

Source:  Bloomberg via Daily Chartbook

100 days ’til Election Day

The House environment favors the Dems. The terrain favors Republicans.

The same is broadly true on the Senate side — except the structural advantages are even greater for Republicans.

Goldman Sachs:

Equities have typically traded sideways in the few months ahead of midterms. During 13 midterm election years since 1974, the S&P 500 has generated a median return of 0% from the start of August through Election Day. Returns have typically improved post-election. Mirroring this pattern, mutual funds and foreign investors have generally demonstrated reduced demand for US equities ahead of midterm elections but increased allocations afterward.

Prediction markets indicate a roughly 85% probability that Democrats win the House, with the Senate outcome close to a coin flip. (GS)

Speaking of predictions, trends in employment and Job postings are not encouraging for the next NFP release on Aug. 7. Job postings have flattened since November and payroll grew only 0.36% in total since.

But unemployment is not getting worse, is it?

@EconBerger

 

I need somebody, (Help) not just anybody, (Help) you know I need someone, help

Won’t you please, please help me

Trump Caught Between Apple and Micron in Fight Over Chinese Chips

Apple’s aggressive lobbying campaign to alleviate rising costs by using Chinese memory chips is colliding with an equally strong push by major supplier Micron Technology to block the move, putting President Trump in the middle of a clash between two of America’s biggest companies.

In recent weeks, Apple Chief Executive Tim Cook and top executives have pitched Trump and officials including Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent on a plan to use memory chips from China’s ChangXin Memory Technologies and Yangtze Memory Technologies in Apple products sold outside the U.S., people familiar with the discussions said.

The move would help alleviate the global pinch on memory chips and potentially reduce prices for American consumers, Apple has argued.

Those arguments have been countered by Micron MU -6.99%decrease; down pointing triangle, the only sizable U.S. maker of memory chips. Micron executives including CEO Sanjay Mehrotra have warned Lutnick and other administration officials that allowing CXMT and other Chinese companies to sell to U.S. tech companies, regardless of the region of sale, could destroy the domestic industry the same way China played a role in decimating U.S. steel and manufacturing plants, the people said.

Apple and other memory chip buyers have avoided the Chinese suppliers after they were deemed Chinese military companies by the Pentagon in recent years. YMTC is also on a trade blacklist known as the entity list.

The lobbying fight will likely force Trump to choose between two of his top economic priorities: cutting prices for U.S. consumers and increasing domestic semiconductor production to reduce dependence on other countries. (…)

The battle deepens the thorny debate within the administration over Chinese technology. (…)

Data-center titans buy huge amounts of memory at higher prices, robbing Apple of its leverage. The resulting supply shortage has enabled the memory makers to increase prices, which have quadrupled over the past year and are expected to rise further, according to research firm TechInsights. Shares of producers have also soared.

Apple is crying foul, arguing that Micron’s gross profit margins, now surpassing 80%, are evidence of price gouging. (…)

Micron says it supplies many industries and plans to spend $250 billion in the U.S. to boost capacity. “The strategic importance of leading-edge memory and storage has never been greater,” a spokeswoman said. Apple and other customers squeezed suppliers during past downturns, sowing the seeds for current shortages, memory executives say. Chinese memory chip prices have also increased. (…)

Both companies have deep lobbying connections, though Apple has a friendly relationship with Trump going back to his first term. (…)

Both companies have contributed funding to the new White House ballroom and made public shows of supporting Trump. Last year, Cook gave Trump a plaque with a gold base in the Oval Office, part of a campaign to win tariff exemptions. Micron recently said it would invest $250 million to match federal funding for so-called Trump savings accounts for newborn children of employees and those in states where the company operates. (…)

(Koyfin)

Corporate America Has Suddenly Decided to Stop Blowing Money on AI Companies big and small are mixing models and it’s changing the economics and power players of the industry

(…) Fed up with ballooning costs, companies big and small are starting to use lower-priced models, including some built in China. In many cases, they are adding the new, cheaper models alongside OpenAI and Anthropic’s products, shopping a la carte for their artificial intelligence. (…)

The most powerful and expensive AI models aren’t necessary for relatively mundane tasks. (…)

Being economical—or tokenomical—is a dramatic reversal in mindset. Just a few months ago, it was a badge of honor to be using AI so much that you spent a lot on tokens. Companies rewarded employees for tokenmaxxing, flashing leaderboards that showed who had spent the most. Now they are thrift-maxxing. 

The shift in their budgeting isn’t just about how much U.S. companies are spending on AI. It’s also a geopolitical issue that pits the world’s economic superpowers against each other. Generally, the best-known U.S. models are closed, which means they are strictly controlled by the companies developing them. China is known for cheaper and open-weight models, which means they can be downloaded and customized.

(…) executives at OpenAI and Anthropic have sounded the alarm about potential [security] risks. Some executives and Trump administration officials have suggested a ban on such models; others argue that those favoring restrictions are trying to stifle competition.

On Friday, a group of tech companies including Nvidia, Microsoft and Palantir signed a letter in support of open models, urging U.S. policymakers to exercise caution on potential restrictions.

No matter how such fighting resolves, many investors and executives say the era of cheaper AI is here to stay. A number of American companies have released or are working on new open models as well. (…)

AI companies are offering customers like him deals “like crazy” to keep them, he said. His company has received months of unlimited free usage. So far this year, Kausas estimates Pylon has received around $1.6 million in free tokens from one vendor, $65,000 from another and $10,000 from another.

Microsoft has weighed adding Chinese models on its platforms including DeepSeek, and executives at a host of startups say they have had conversations about using open models with top executives at financial institutions, healthcare companies, insurance providers and others.

Cursor can easily embrace model mixing because its coding software is “model agnostic,” meaning that users can toggle between advanced models from OpenAI, Anthropic, SpaceX, Google and Chinese model-makers. (…)

Cursor recently ran an experiment to evaluate the cost of building a web browser from scratch. Doing the entire task on OpenAI’s GPT-5.5 cost a little more than $10,000. Using Cursor’s Composer coding model in combination with Anthropic’s Opus 4.8, cost $1,339.  (…)

An OpenAI spokeswoman said a newer model—GPT 5.6 Sol—has been trained to be much more token efficient, meaning it can complete advanced tasks for less money. Anthropic released a powerful, lower-cost model on Friday. A company executive said its users can choose higher intelligence or lower cost within its ecosystem. (…)

The increasing popularity of such models has turned the AI race on its head, threatening the heady valuations of Anthropic and OpenAI as they prepare for public listings. To fight back, they are trying to lock in customers, offering partnerships, tens of thousands of dollars in incentives and heavily subsidized AI usage. (…)

Today, a family of models made by Chinese startup Z.AI is powering the company’s [Telnyx] 1,400 agents, which costs around $100 per agent per day. Anthropic’s most powerful model, Fable, acts as a conductor that plans out work while open-weight models do the implementation. OpenAI’s Sol handles a review of what the open-weight models produce. 

Gabe Pereyra, president of the legal AI startup Harvey, said the company trained [Z.ai] GLM-5.2 and provided it with a tool that allows it to “call” Anthropic’s Fable 5 model if it determines that “this is a really hard task.”

“We work with all of them,” he said. “We’re figuring out a bunch of solutions like this to maintain performance or improve performance and get much better cost.”

The AI reality:

• Companies need to use the best frontier model for their more complex tasks so frontier labs must keep spending (and charge high prices) to stay on top.
• But that makes using AI exorbitant so lower cost models are favored for the more mundane but still token-hungry tasks.
• Because models keep improving, model flexibility and model mixing are paramount to optimize efficiency and costs.
• Model agnostic offerings such as Cursor’s Composer and Perplexity’s Orchestrator are obvious solutions.
• But these solutions need Chinese models without which costs are prohibitive for most users.
• Banning Chinese models would seriously raise costs, limit usage and hurt the whole AI ecosystem. It would also make American companies much less competitive abroad while imposing higher costs domestically.
• Without Jevons’ Paradox (lower prices drive higher usage), hyperscalers’ capex may never reach a proper ROI.
• Tariffs and war-induced supply chain snags add to AI building costs, more so in the US which does not enjoy China’s lower wage and energy costs.
• China’s open models strategy also spurs competition and innovation from its army of engineers.

When Moonshot launched Kimi K3 in mid-July, it priced the first open 3-trillion-class/2.8T system 6x higher than its previous model. Its price matched Anthropic’s mid-tier Claude 5 Sonnet but was still 70% cheaper than Claude Fable 5 on tokens. Proof that performance remains paramount, the costlier Kimi K3 received overwhelming demand forcing Moonshot to pause subscriptions until it could supply the surging compute.

FYI:

Trump Administration Admits Canceling Grants to States That Did Not Vote for Him

When the Trump administration canceled more than $7.5 billion in Biden-era federal grants for clean energy projects in October, it framed the move as an urgent corrective to protect taxpayer funds from waste.

But it wasn’t true.

In little-noticed court documents, federal officials acknowledged this month that they had terminated the funding “based solely” on political criteria, targeting projects in states that were represented by Democrats and had voted for Kamala Harris, the party’s presidential nominee, in the 2024 election.

The admission showed how President Trump has weaponized the provision of federal education, energy, health, housing and infrastructure aid in his second term. (…)

The lawyer acknowledged that none of the grants were included in the October terminations “based on any programmatic, statutory, cost-reduction or performance-based factor.”

• “I pledge to every citizen of our land that I will be president for all Americans, and this is so important to me.” (Trump, November 9, 2016)
• “I am running to be president for all of America, not half of America, because to win for half of America is not a victory.” (Trump 2024 RNC Nomination Acceptance Speech)

U.S. Measles Cases So Far This Year Hit a Three-Decade High

Measles cases in the U.S. during the first seven months of this year have surpassed all of 2025’s tally, setting a new three-decade high. (…)

Its rapid spread illustrates a new normal in the U.S., where falling vaccination rates have made more communities vulnerable to the highly infectious disease that the country declared eliminated more than 25 years ago.

Outbreaks in Utah and South Carolina contributed to around half of the country’s total cases, according to CDC data. (…) Measles cases are also currently on the rise in Pennsylvania and Virginia. (…)

Vaccination rates have significantly decreased over the last 30 years in small pockets of the country, she said. (…)

Vaccination rates are dramatically lower in some states, communities and schools. In Idaho, 78.5% of kindergartners received the MMR vaccine ahead of the 2024-25 school year—the lowest share of any state. In the northern part of South Carolina, where a measles outbreak spread earlier this year, one school reported just around 20% of its students had all the required vaccinations. (…)

Trump’s Trade Wars Are Back—Despite the Supreme Court

(…) To Trump, though, court rulings are road maps, not roadblocks. February’s court ruling simply rerouted him to tools the court hadn’t explicitly prohibited. And fortunately for Trump, Congress has over the years scattered many such tools through the law books, many largely forgotten or unused.

In the past two weeks Trump has announced tariffs of 25% on Brazil, 50% on Canada and up to 200% on generic drugs, and on Thursday, tariffs of 10% to 12.5% across as many as 60 trading partners. The upshot: Trump can wage a trade war that is as sweeping and capricious as before the Supreme Court ruled.

Tariffs are central to Trump’s vision of presidential power: a catalyst for national rejuvenation, a source of revenue and an all-purpose crowbar to force allies and adversaries alike to do what he wants, from lowering their own trade barriers to surrendering territory.

This vision is at odds with the Constitution, which gives Congress authority over tariffs and taxes, except when delegated to the president for specific reasons. It also breaks with the bipartisan consensus in Congress that trade policy should enhance strategic bonds with allies and neighbors. (…)

Yet with these new tariffs, Evercore ISI, an investment bank, estimates Trump will raise a hefty $240 billion to $260 billion a year, just 20% less than before the Supreme Court ruling and still triple the pre-Trump level.

Trump likes to impose and repeal tariffs without notice, for maximum effect. The problem with 232 and 301 is that they require lengthy periods of investigation and comment. Not 338, though.

“This is possibly the new Ieepa,” said Sarah Bianchi, a former trade official under President Joe Biden who is now a policy analyst with Evercore ISI. “If he’s able to use this tariff for leverage, I don’t know why he wouldn’t keep trying. As to which one is next, the European Union would be on your list.” (…)

Trump’s use of 338 is “ironic if not perverse,” Veroneau said, because under the North American Free Trade Agreement, now the U.S.-Mexico-Canada Agreement, Canada gives the U.S. better access than it does to most other countries. It was Trump who then overrode those pacts to hit Canada with duties on steel, aluminum, autos and other goods. Canada retaliated, and Trump is now punishing Canada for retaliating. In effect, he is laying down the principle that discrimination is acceptable as long as it’s the U.S. doing the discriminating. (Under USMCA, Canada does restrict U.S. dairy imports. Trump claims the EU gets better terms.) (…)

Congress may be about to cede to Trump even more power. Just before he died, Sen. Lindsey Graham (R., S.C.) had finally persuaded Trump to back a bill imposing steep tariffs on Russia for invading Ukraine, and the largest buyers of its oil and gas. At Trump’s behest the bill was weakened, allowing Trump to issue waivers. The bill is gaining support in the Senate, while its fate in the House is unclear.

The bill would enable Trump to use tariffs instead of sanctions for geopolitical goals, something the Supreme Court said he couldn’t do under Ieepa. But trade and sanctions expert Peter Harrell said as written, the bill would perversely let Trump waive tariffs on Russia, then tariff the EU for refusing to back his war with Iran. Harrell, who was an adviser to Biden, noted Trump already has the authority to sanction Russia but has barely used it.

“It makes me a little suspicious,” said Harrell. “If he does not seem interested in putting pressure on Russia, but does seem interested in this bill, what would his interest be? The tariffs.”

• Carney Says ‘Everything’s on the Table’ If US Imposes New 50% Tariffs

Euro-Zone Business Activity Jumps to Five-Month High

The Composite Purchasing Managers’ Index compiled by S&P Global rose to 51.9, above the 50 threshold separating growth from contraction for the first time since March. That’s more than anticipated by all but one economist in a Bloomberg survey that had a median estimate for a slight uptick to 50.2.

The region’s two largest economies both exceeded expectations, according to the survey conducted July 9-22. Germany’s reading unexpectedly jumped well above 50, snapping three months of contraction, and France’s downturn softened to the weakest since February. (…)

Friday’s survey revealed some good news on inflation, with cost pressures cooling sharply to the lowest since the outbreak of the war, thereby helping moderate the rate of inflation for selling prices across goods and services. (…)

Flash PMI readings across Asia-Pacific showed solid growth in Australia, Japan and India. The UK saw a surprise increase above the 50 threshold, supported by the World Cup, staycations and scorching weather. US data are due later on Friday.

More PMI info:

• The rise in output in July was in line with a renewed increase in new orders, the first in five months. Although modest, the rate of growth was the fastest since April 2023.
• New export orders continued to fall, but the rate of decline was only marginal.
• The rate of job creation was only marginal, however, as sustained reductions in manufacturing staffing levels tempered the boost to employment from the service sector. Data indicated that gains in workforce numbers were concentrated outside of the largest two eurozone economies, with Germany and France continuing to see employment fall.
• Input prices continued to rise sharply during the month.

In Japan:

• Overall new business growth eased at the start of the third quarter. The latest rise in composite new work was moderate, and was driven mainly by the sharpest increase in manufacturing orders for just over five years.
• By contrast, new business growth in the service sector slowed to only a mild pace.
• Total new export business expanded modestly in July, and at the fastest pace in four months.
• Underlying data showed a stronger rise in overseas demand for goods, while foreign demand for services declined again.

Magnificent 7 Lose $797 Billion as AI Skeptics Dump Tech Stocks

The culprit was earnings from Alphabet Inc. and Tesla Inc. after the bell on Wednesday, which spooked traders and cast doubt on the durability of the AI trade that has powered the stock market for more than three years. Alphabet raised its capital spending forecast to as much as $205 billion this year.

Meanwhile, Tesla Chief Executive Officer Elon Musk told investors that 2026 will be “a massive capex year” after the electric vehicle maker reported profits that were far below analysts’ expectations.

“The real problem is the amount of spend that’s going on,” said Ken Mahoney, chief executive officer of Mahoney Asset Management. “No one knows what the return on investment is.” (…)

The Mag 7 index is now down 11% from a record reached in late May, erasing $2 trillion in market value. (…)

Other major AI spenders also fell, with Microsoft Corp. sliding 2.2%, Amazon.com Inc. sinking 4.6% and Meta Platforms Inc. declining 3.4%. All three report earnings next week. (…)

(WSJ)

Goldman Sachs now forecasts GOOG’s 2026/27 capex of ~$205bn / ~$350bn, respectively.

Some are asking “when will this end?”

Alphabet said that cloud revenue grew 82% to $24.8B with a backlog of $514B driven by customers including Apple, Meta and Anthropic.

By comparison, Amazon, the leading cloud-computing player, reported $37.6B in revenue in the first quarter, +28% YoY. Microsoft’s cloud business, the industry’s second biggest, grew at a 40% pace in its latest reported quarter.

CEO Sundar Pichai says the industry is in the “early innings” of the AI transition, which implies the heavy spending could go on for a while.

CFO Ashkenazi said that “our goal is to invest as long as we see an attractive return on that investment.” Ashkenazi said Google is supply-constrained for multiple quarters ahead.

GOOG’s Cloud segment revenues jumped +82% YoY in Q2’26 and the backlog increased $50B QoQ to $514B. Importantly, operating margin rose some 1500bps YoY due to significant enterprise AI demand (nearly 90% of Fortune 100 companies are using Gemini Enterprise and new customer acquisition doubled YoY).

This GS table shows that Cloud operating income was $8.8B last quarter, 19% above Goldman’s estimate, with margins of 35.6%.

Management explained that AI is now moving from the “infrastructure” to “platform” and “application” layers of AI monetization.

GOOG’s Q2 Search & Other revenue growth of +16.8% YoY beat expectations and confirmed the integration of AI Overviews & AI Mode into one seamless search experience driving increased usage (AI Mode at 1B+ applications).

Beware of how EPS are presented. The last sentence on the above table is important. Alphabet’s mark-to-market gain iin Q2 was approximately $6.25 per share. So Operating EPS were $2.86.

Alphabet’s Google disclosed that it owns $94.1 billion in SpaceX shares, representing the bulk of $99 billion in unrealized marketable securities gains in the second quarter.

Recall that Q1’26 included $36.9 billion ($2.35/share) of unrealized equity gain from the same equity stakes.

DRY POWDER NO MORE?

 

• From Barron’s:

In barely more than a month since its historic initial public offering, SpaceX has delivered one of the weakest post-debut performances of any major U.S. listing since the end of the Great Recession. The stock has performed worse than 90% of other U.S. IPOs with market capitalizations of $1 billion or more since July 2009.

Over the first 27 trading days, SPCX is down -23% from its first day closing price of $161. As of last Friday, retail investors had plowed $315 million into SpaceX stock.

IPOs Have Been a Losing Bet Since 2019

The chart below shows that IPOs since 2019 have underperformed the broader market over the following three years, driven by three main forces:

1) Peak valuations: The 2020–2021 wave came public at rich multiples amid zero rates, stimulus and speculative retail demand, leaving little room for gains.

2) A hostile rate regime: The Fed’s hiking cycle from 2022 compressed valuations and hit the long-duration, unprofitable growth stocks that dominate IPO cohorts hardest.

3) Low quality, high bar: The boom pushed marginal companies public before they were ready while the market-adjusted benchmark was set against an index carried by a handful of mega-cap winners.

Each of these forces could persist: valuations may re-inflate in the next IPO window, rates look set to stay structurally higher than the 2010s and index returns remain concentrated in a few mega-caps that keep the relative bar high.

(Source: Jay Ritter, Apollo Chief Economist)