Note: some email subscribers did not get the daily emails last week due to a MailChimp/Wordpress bug. You might have missed:

• 18 August 2026: Bonds Matter

• 19 August 2026: Normalizing valuations?

• 20 August 2026: Bond vigilantes, Bessent, FOMC, Warsh, Trump, Kennedy Jr.

• 21 August 2026: Bessent vs vigilantes.

***

WARS PEOPLE PLAY!

USA vs CANADA

Recall that these negotiations were about new 50% tariffs threatened by Trump in July, to retaliate because Canada stood up and retaliated to his earlier tariffs, initially because of phony fentanyl trafficking. Look where we are now.

Then the trade deficit. As the WSJ puts it

Mr. Trump’s complaint about the U.S. trade deficit with Canada is particularly ironic since the latter owes entirely to imports of heavy crude oil that is especially well-suited for U.S. refineries. Exclude Canadian oil, and the U.S. would have a trade surplus. But U.S. refineries would also operate at lower capacity.

Last Tuesday, Trump delayed his initial deadline, posting on Truth Social that the two sides had reached “a DEAL” and needed three days to finalize the documents.

The subsequent breakdown spotlighted tensions in the president’s strategy, including questions over the durability of any deal reached with the U.S. administration.

After all, the U.S. and Canada, along with Mexico, already have a trade deal: the United States-Mexico-Canada Agreement (USMCA) of 2020, which Trump hailed at the time as “the largest, fairest, most balanced, and modern trade agreement ever achieved.”

But this year, the president threatened to quit the deal and demanded sweeping changes to it, aimed at promoting more U.S. manufacturing. He also imposed tariffs on Canadian goods starting last year, a breach of the accord.

On Saturday, speaking in Ottawa, Carney alluded to the difficulty of negotiating with a mercurial president.

“We’ve recognized from the start that America has changed,” Carney said. “We recognize that sometimes, its signature is written in pencil.” (David Lynch)

The subdued, composed and prudent former central banker Mark Carney called it quit and told Canadians Saturday morning “You are at war when you get attacked. We got attacked.”

Carney blamed meaningful “last-minute changes” that were unfair and called into question the reliability of any deal.

What happened?

But as Greer haggled with the Canadians this week, a split emerged over the U.S. trade representative’s willingness to reduce an existing 50 percent tariff on aluminum derivatives to 25 percent in return for Canadian concessions.

At a White House meeting, White House trade adviser Peter Navarro and Commerce Secretary Howard Lutnick, whose department administers the national security tariffs, clashed with Greer, representing industry views that the higher aluminum tariffs were needed to encourage domestic manufacturing.

“Navarro and Lutnick were both yelling at Greer saying: ‘What are you doing? This is stupid. You know, we’re not giving these things away,’” said one industry representative, who spoke on the condition of anonymity to describe the confidential talks.

Late in the talks, the U.S. sought to exclude from tariff reductions heavy trucks produced in Ontario, such as the Ford F-350 and F-450, and the GM Silverado. Over time, that would have made it “more uneconomic” for the automakers to keep making the vehicles in Canada, Carney said.

The administration also sought to restrict Canada’s right to sign trade deals with other countries, a key part of Carney’s strategy to reduce dependence on its increasingly unreliable southern neighbor. (…)

“Demanding that your closest trading partner mirror your trade policy with third countries is akin to asking them to surrender agency over foreign policy. This episode shows that doesn’t work, no matter the disproportionate market leverage of the USA.” (…)

On Saturday, Carney said Canada will retaliate on Sept. 8 for the new tariffs with its own trade measures. By delaying his response, he is leaving time for cooler heads to prevail, analysts said.

“Then the parties come back to the table. North America is too integrated for it to unravel on the basis of a deal that was put together over 14 days,” said Dan Ujczo, a trade lawyer in Columbus, Ohio. (…) (WaPo)

Carney, Saturday: “Last spring, I warned that America is trying to break us so they can own us. And I promise that that will never ever happen. We are keeping that promise.” Polls say 75% of Canadians support him.

Funnily (?), “As Carney prepared to walk away — a rare example of a foreign leader telling the president “enough” — Trump was retreating on another trade front. On Friday, after insisting for more than a year that tariffs do not affect consumer prices, he lifted tariffs on beef imports, saying the move would lead to lower grocery prices.” (David Lynch)

• Trump Has a Beef With Tariffs He lifts border taxes on up to 300,000 metric tons of imports—through the election.

One of the (many) problems with tariffs is that they lead to countless and arbitrary exceptions for political purposes. President Trump’s latest came Friday as he announced plans to lift tariffs on beef imports for 90 days. You may notice that this covers the three months through the November midterm elections. (…)

It’s nice that Mr. Trump is giving American consumers this reprieve, at least through the election. He knows he and Republicans are being blamed for higher prices. The break on imported beef is supposed to show he’s doing something about it, even if he is resorting to price controls on imports in the process. (…)

But he still won’t admit that these concessions to political reality are a tacit admission that his tariffs have failed economically and politically. The public is unhappy about higher prices and voters understandably think Mr. Trump’s ballyhooed tariffs are partly to blame. (…)

Despite his claims that tariffs are a miracle economic cure, Mr. Trump has allowed exceptions for imported consumer electronics, smartphones, coffee, bananas, copper, chemicals, flat-panel TVs, memory chips, fertilizer, and hundreds of other products.

Have a good lobbyist, will travel in Washington. Mr. Trump may treasure the political leverage all of this provides him, but he and his party may pay a price this November for raising prices for millions of consumers.

Americans are no dumb and dumber. “One reason for Mr. Trump’s frigid approval rating is that voters believe Mr. Trump is waging blunderbuss wars without a strategy, and on trade they’re right.” (WSJ)

Only on trade?

What was, is, the strategy on Ukraine/Russia? Gaza? Iran? China, AI, the budget deficit, national debt, housing. etc.?

Wait! Here’s the new strategy on Iran, from the US Treasury Secretary, already at war with the bond vigilantes:

Scott Bessent: an economic D-Day is coming for Iran

Bessent in Sunday’s FT:

(…) At dawn begins an economic D-Day — the single greatest financial offensive ever marshalled against an adversary. (…)

Too often, though, we find ourselves alone in our resolve to thwart it. (…) The regime’s final refuge now lies in the self-deception of fearful nations that still believe accommodating aggression can secure a durable peace. (…)

In short, these countries calculate appeasement of the regime to be the safer course.

But they would do well to consider the consequences of sustaining it. (…) Pascal’s eponymous wager now applies to Iran’s lifelines. Nations that, in courting reprieve from Tehran, continue to replenish the very regime from which they seek protection — and now exceed the limits of America’s tolerance. (…)

Not another generation should be condemned to the menace of fanatics who devote themselves to “death to America” and fulfilling the regime’s nuclear ambitions.

And total financial isolation can obviate the need for American force while enlarging the sphere of freedom for our allies. Those who sever Iran’s remaining financial and commercial connectivity will reinvigorate their own. They will deepen their access to global capital, reinforce confidence in their markets and attain the standing they seek in the world economy.

The alternative for those who tether themselves to Tehran is the foreclosure of any path to lasting prosperity. (…)

And any nation that serves as a financial artery of a withering regime should expect to share in its isolation. To become a sanctuary for terror is to become, in the eyes of the United States, a global pariah.

The Islamic republic has subsisted by dressing extortion as security guarantees. It has drawn strength from a calculus that regards Iranian retaliation as certain and American enforcement as negotiable. Under President Trump, that era is over.

And those who fear the danger of defying Tehran ought not to discount the cost of testing Washington. The president has created the conditions to leverage every agency, every authority and action many assumed we would never summon.

Any remaining tie to Tehran will hasten the economic ostracism of countries and entities, whether that tie be purposefully constructed or wilfully ignored.

And if, as the regime’s grasp on power crumbles alongside its economy, Iran resorts to military action against US forces or its Gulf neighbours, make no mistake: President Trump will respond swiftly and decisively.

The world should understand that our objective is to sever every economic lifeline that sustains the tyrannical regime until Tehran stands alone. Pascal considered salvation to be a choice. As a great wave of American resolve comes ashore, are Iran’s enablers willing to wager their future against it?

Sounds more like dire warnings to the whole world:

And those who fear the danger of defying Tehran ought not to discount the cost of testing Washington. The president has created the conditions to leverage every agency, every authority and action many assumed we would never summon.

Any remaining tie to Tehran will hasten the economic ostracism of countries and entities, whether that tie be purposefully constructed or wilfully ignored.

Questions:

• “our allies”?
• Has this been discussed with US “allies”, whoever they may be?
• Congress?
• Are GCCs on board?
• China, Russia, North Korea, Turkey?
• How long will this take, if it works?
• Plan B, C, D?

Also on Sunday:

Mohsen Rezaei, Iran’s top security official, said in a post on X on Sunday: “If the economic war continues, not a single drop of oil will be exported, neither through the Strait of Hormuz nor from anywhere in the Persian Gulf. Iran will regard any country’s participation in or support for America’s economic war against the Iranian people as an act of war.”

Traffic through the waterway has fallen to lows only seen when strikes were at their heaviest earlier in the conflict. Windward, the maritime analytics company, said that there were only about 16 transits per day in the past week, down from more than 130 before the conflict broke out. (FT)

From Windward: Of the very few outbound crossings of the past 7 days, two thirds are destined to China, 10% to Russia.

Inflation, deflation:

Nvidia Customers Notified About AI-Related Price Hikes Above 15%

The price hikes will go into effect on systems shipped early next year and will impact systems including those with the flagship Vera Rubin and Grace Blackwell chips, according to people familiar with the process, who asked to not to be identified commenting on communications that haven’t yet been made public. The increases will depend on the generation of Nvidia chips and the memory configurations, they said. (…)

Nvidia’s accelerator processors are the heart of computers that create and run AI software. Their effectiveness depends on how much dynamic random access memory, or DRAM, they are paired with. The two Korean companies and Micron account for most of the world’s production of that type of chip. While they’ve been increasing output, they still haven’t caught up with surging demand. That’s driven the price of the commodity-like components up massively and given their manufacturers unprecedented influence in technology. (…)

How Nvidia’s customers react to this latest move and whether it will create an opening for its competitors will likely depend on whether they’re able to secure enough memory themselves. Major customers like Amazon, Microsoft, Google and Meta are all pursuing their own in-house chip programs but are still dependent on purchases from Nvidia for their data center build-outs. Their ability to push forward with greater independence will also depend on their access to supply from Samsung, SK Hynix and Micron.

The price increases are also likely to add complexity to the industry’s massive AI data center build-out ambitions. Project delays, labor shortages, tightening capital markets and community resistance to developments have already complicated many plans.

The Information: “The changes could increase the cost of a 1 gigawatt data center by at least $5 billion, based on the current price of chip systems for such a facility.”

• OpenAI cuts developer pricing for frontier GPT-5.6 Sol model by more than 20%

OpenAI said on Friday it is cutting the prices of its frontier GPT-5.6 Sol model for developers ​by more than 20% for the next ‌three months, as the ChatGPT maker faces growing competition from Anthropic and Chinese AI models.

• The price cuts are effective on OpenAI’s ​application programming interface, or API, and are ⁠rolling out across eligible plans for credits ​on its agentic AI product ChatGPT Work and ​its coding tool Codex, OpenAI said.

• Pricing for Pro, Plus and Business subscriptions remains unchanged, the company said.

• GPT-5.6 Sol ​is now priced at $4 per 1 million ​input tokens and $20 per 1 million output tokens for ‌standard ⁠short-context use, according to OpenAI’s pricing table. That compares with previous prices of $5 and $30, respectively.

• OpenAI late last month slashed prices of its smaller models. It cut prices for ​the mid-tier ​GPT-5.6 Terra ⁠model by 20% and for the lower-cost Luna model by 80%.

• Anthropic lists ​its frontier Claude Fable 5 model at $10 ​per ⁠1 million input tokens and $50 per 1 million output tokens, while its Claude Opus 5 ⁠model ​is listed at $5 per 1 ​million input tokens and $25 per 1 million output tokens.

FYI:

Tech Insider Buying: moving on, despite the global equity bull market, US tech stocks peaked back in early June and have been consolidating ever since. One sign that they might be gearing up to rejoin the global bull market though is the strong pace of corporate insider buying. (Callum Thomas)

Source:  @jasongoepfert

US Flash PMI

USA: Business growth hits 52-month high in August

The headline flash S&P Global US PMI Composite Output Index rose from 54.5 in July to 56.0 in August, registering the fastest growth since April 2022. The survey data signal a marked acceleration of business growth so far in the third quarter, though the drivers of growth have diverged. While strong manufacturing growth throughout the second quarter has faded over the summer, such that goods production showed the smallest monthly rise for 13 months in August, service sector activity has revived from the sluggish pace reported in the second quarter to reach the fastest since December 2024.

This changing sector pattern of growth is less evident for order books, with both manufacturing and services again registering robust increases in demand in August. Nonetheless, while the growth trend for orders has slowed in manufacturing, it has improved in services.

This divergence reflects some cases of manufacturing production being constrained by raw material shortages, linked to supply chain delays, as well as reports of less precautionary inventory accumulation. Safety stock building related to concerns over price rises and supply shortages due to the war in the Middle East had been a key driver of factory growth in the early months of the conflict, but now appears to be fading.

Input buying by manufacturers also rose only slightly in August, registering the smallest increase so far this year. However, supply chain delays remain widespread, with supplier delivery times lengthening in August to one of the greatest extents seen over the past four years, blamed on shipping delays, tariffs, and diminished stock availability at suppliers.

Supply delays caused backlogs of work to accumulate again in manufacturing, with outstanding orders having risen since the start of the war at rates not seen since 2022. However, strong demand combined with supply constraints has also led to rising backlogs in the service sector, where outstanding orders rose in August at the sharpest rate since May 2022.

Business output expectations improved for a third successive month in August, recovering to their highest since November of last year, reflecting a combination of order book backlogs, rising customer enquiries, expansion plans, and an easing of concerns over the economic impacts of tariffs and the war in the Middle East. Confidence improved in both manufacturing and services during the month.

Having shown little net change over the prior eight months, employment rose sharply in August. The increase in payrolls signalled was the largest since January 2025 and second largest recorded over the past four years. An especially marked rise in staffing was reported in the service sector, the largest rise since the start of last year, but factory jobs growth also picked up to the highest since May. Job gains reflected improved business confidence about the near-term outlook and fuller order books.

Price pressures moderated in August. Average input costs measured across both goods and services rose at the slowest pace since February. The cooling of services cost inflation from July’s 14-month high was especially marked, while factory input cost inflation moderated for a third month. However, both remained elevated by historical standards, blamed by survey contributors on high energy prices, squeezed supply lines, and tariffs. The average cost increase so far in the third quarter consequently slightly exceeds that seen in the second quarter despite August’s easing.

As input cost inflation dropped to the lowest since the start of the war in the Middle East, selling price inflation also moderated. Average prices charged for goods and services rose in August at the slowest rate since last November, softening to a ten-month low in services and a six-month low in manufacturing. Fewer reports of the need to pass through higher fuel and energy prices were a key driver of the reduced rates of increase.

 

Eurozone business activity continues to rise in August amid stronger manufacturing growth

• Flash Eurozone PMI Composite Output Index: 52.1 (July: 52.0). 9-month high.
  Flash Eurozone Services PMI Business Activity Index: 51.7 (July: 51.7). Unchanged pace of growth.
  Flash Eurozone Manufacturing Output Index: 53.4 (July: 52.9). 54-month high.
  Flash Eurozone Manufacturing PMI: 52.8 (July: 51.9). 51-month high.

 

Japanese business activity expands at quickest rate for six months in August

• Flash Japan Composite PMI Output Index: 53.4 (July: 52.7)
  Flash Japan Services PMI Business Activity Index: 52.3 (July: 51.2)
  Flash Japan Manufacturing PMI: 55.1 (July: 54.5)
  Flash Japan Manufacturing PMI Output Index: 56.1 (July: 56.3)

 

We just keep making history!

Financial Times

Bessent Says He’s Ready to Expand Treasury Buybacks

(…) “We are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation,” Bessent said in an interview Thursday on CNBC. He told reporters separately that President Donald Trump had tasked himself and Budget Director Russ Vought in that initiative. (…)

And he highlighted that the expanded buyback operations “could be more than the $4 billion” size currently planned to start next month. (…)

“We have a big toolkit, so we’ll see. And part of it is signaling here — to show that we believe that the yields don’t reflect the underlying fundamentals.” (…)

“All we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market,” Bessent said.

He didn’t suggest what “headlines” he was concerned about the market paying attention to. But on Wednesday, Treasury data showed that one broad gauge of US debt surpassed $40 trillion for the first time.

Bessent also didn’t specify what the new fiscal push will involve. But he pointed to the potential for a fraud task force to save “hundreds of billions of dollars” and suggested that “a lot of these programs that are being given to the states” are being “frittered away” and could be cut back. (…)

“The underlying economy, I think, is very strong, and the only inflationary impulses that we’re seeing are coming from energy, which is temporary,” Bessent said. (…)

Much like a company’s CFO announcing a stock buyback after the stock tanked.

• It Didn’t Take Long for the White House to Undermine the Fed

(…) It was just a few weeks ago that Warsh told reporters that the rise in longer-term government borrowing costs served a valuable purpose, tightening financial conditions in an economy with inflation still elevated and sending key signals to the central bank on how to set monetary policy. Now comes the Treasury Department under the direction of former hedge fund manager Scott Bessent to upend all of that (…).

• Ed Yardeni:

Bessent’s Treasury is following former Treasury Secretary Janet Yellen’s 2023 playbook by financing more of the deficit in the Treasury bill market. In effect, the Treasury is forcing the Fed to buy Treasury bills to keep the federal funds rate from rising. (…)

Commodity prices suggest that significant inflationary pressure remains in the pipeline. Diesel prices have soared more than crude oil prices this year (chart). Metal prices are also up sharply on AI-related demand. Wheat prices are rising amid concerns that Russia will block Ukraine’s grain exports.

• What is Scott Bessent doing with the $32tn Treasury market — and will it work?

(…) The US Treasury’s toolkit, unlike the Federal Reserve’s, does not offer Bessent potentially unlimited powers to create cash. Unlike the Fed, the Treasury cannot engage in a multitrillion-dollar bond-buying spree — dubbed by central bankers as “quantitative easing” — to bend the yield curve and keep the government’s borrowing costs low. (…)

The likely strategy of buying long and issuing short has drawn comparisons with the Fed’s Operation Twist in 2011, where the central bank used the proceeds of sales of hundreds of billions of dollars’ worth of short-term notes to buy longer-dated government bonds.

The Fed’s operation helped lower longer-term borrowing costs at a time when short-term interest rates were already close to zero — but was far larger than Bessent’s intervention. (…)

“Bond buying can target pinch points, but doesn’t change the debt trajectory,” said Dec Mullarkey, head of investment strategy and asset allocation at SLC Management. “Debt markets are repricing for the growing fiscal risks.”

Some also think the optics of Bessent directly intervening in the Treasury market to influence borrowing costs could itself prompt a further debt sell-off, raising yields further.

“Some investors may be thinking that if the administration is resorting to yield curve control, maybe the administration feels like inflation is going to be higher for longer,” said Michael Strain, director of economic policy studies at the American Enterprise Institute.

“And that’s going to put upward pressure on longer-term yields.”

Iran vows ‘devastating’ response as US threatens toughest ever economic hit

Iran said on Friday that its response to any new U.S. threats would be “devastating” after Washington pledged to ​impose the toughest financial penalties in history with the aim of toppling the Iranian leadership.

U.S. Treasury chief Scott Bessent’s comments on Thursday followed a warning from President Donald ‌Trump of economic consequences against any country that provided “any type of lifeline to Iran.” Bessent promised details on Monday. (…)

Iran’s powerful ​parliament speaker Mohammad Baqer Qalibaf, the country’s main negotiator in mediated negotiations with the United States, said Washington appeared to have concluded it could not prevail in its direct ​military confrontation. (…)

“I’m not sure why oil has popped up on this,” Bessent told CNBC. “If we are doing the maximum economic pressure, then that means that likely there will not be a large-scale kinetic restart,” he said, using a term referring to military force. (…)

“It is going to work in Iran ​and we are going to collapse this ⁠regime. It is time for our allies and the rest of the world to make a decision,” he said. (…)

China buys more than 80% of Iran’s shipped oil, according to 2025 data from ​analytics firm Kpler, but engaging ⁠in further economic warfare with Beijing, a major exporter to the U.S. including of vital rare-earth minerals, risks retaliation against Washington.

When asked if the United States could target China for doing business with Iran, Bessent said many conversations were best to have in private.

“Keep in mind that the Chinese get 50% (of their) energy… from the Gulf. So it would do them a big service to get with the program,” he ⁠said.

China’s embassy in ​Washington said “sanctions and pressure do not help resolve the problem”.

“China calls on the relevant parties to take responsible actions ​and resolve the issue through political and diplomatic means,” according to an embassy spokesperson.

Offers of Iranian crude to Chinese buyers have already declined and prices have jumped this week as the U.S. blockade on Iranian ports — reimposed on July 13 — has ​cut Tehran’s shipments, trade sources told Reuters.

America’s capital crunch: Soaring debt collides with AI spending spree

(…) President Trump said in 2016 that he could eliminate what was then roughly $19 trillion in national debt within eight years. On Tuesday, the debt crossed $40 trillion, after growing by $3 trillion in the past year alone. (…)

Treasury must refinance $9.7 trillion in debt coming due this fiscal year while covering a deficit the Congressional Budget Office now projects at roughly $2.1 trillion.

Old debt comes due, Washington replaces it with more expensive debt, and the resulting interest bill feeds future deficits.

• CBO projects annual deficits will average $2.4 trillion through 2036, pushing debt held by the public to 120% of GDP — above the record set after World War II.
• The U.S. has already spent $963 billion on interest in the first 10 months of this fiscal year, $200 billion more than it spent on the military over the same period.

For years, Silicon Valley’s AI buildout was financed almost entirely with cash. Now Big Tech is becoming one of the biggest new forces in global debt markets.

• Bond sales by the “hyperscalers” building AI infrastructure are on pace to roughly double in 2026. Goldman Sachs projects debt will fund more than a third of their AI spending by 2027.
• Nvidia is working with BlackRock, Goldman Sachs, KKR and other Wall Street giants on plans to marshal more than $500 billion for AI infrastructure.

Nine major tech companies have already spent roughly $600 billion on capital projects over the past year.

A Wall Street Journal analysis found they have another $3 trillion in future commitments, mostly tied to AI, that aren’t yet reflected on their balance sheets.

• Social Security’s retirement trust fund is projected to run dry in late 2032, during the final months of the next president’s first term.
• Medicare’s hospital trust fund follows in the second quarter of 2033.

Trump and Elon Musk promised to break Washington’s addiction to debt without forcing Americans to swallow painful sacrifices.

• Musk launched DOGE with ambitions of cutting as much as $2 trillion from federal spending. Its final public tally claimed just $215 billion in savings — barely a tenth of that goal.
• A federal audit released this month found billions in unsupported or inaccurate savings claims, including $27.4 billion tied to contracts that were still active. (…)

Few problems loom larger over America’s future than its colossal debt burden. Yet few are treated with less urgency by the politicians who will have to confront it.

Tackling the budget deficit would have been wiser than fighting the trade deficit. Another failed fight.

Federal interest expense rose from 2.5% of GDP to 3.8%. CBO (optimistic) data say interest expense will double in the next 10 years to $2.1T. If GDP rises 5% per year, interest expense will eat nearly 4.5% of GDP in 2035.

Economists Boost US Growth Forecasts for Third Quarter

Economists raised their forecasts for US economic growth in the third quarter, reflecting upward adjustments to consumer spending as well as private investment that includes capital outlays on artificial intelligence.

Gross domestic product is now seen expanding at a 2.5% annualized rate in the third quarter, up from 2% in the previous survey, according to the latest Bloomberg News monthly survey of economists. Quarterly GDP projections through the end of 2027 were little changed and confined to a narrow 2%-2.2% range.

The personal consumption expenditures price index, excluding food and energy, is seen averaging 3.2% this year before cooling to an average 2.5% in 2027 on an annual basis.

With the so-called core PCE price metric showing moderating inflation, economists expect the Federal Reserve will keep interest rates unchanged through July of next year.

“Tech/AI related investment is the main factor driving higher business capex, while high-income household spending is responsible for the majority of consumer spending growth,” said James Knightley, chief international economist at ING.

According to Bloomberg Industry analysts, total capital expenditures related to artificial intelligence may exceed $1 trillion this year and $1.5 trillion in 2027.

In addition, “cooler jobs and inflation data and a sense new Fed Chair Kevin Warsh was less inclined to raise rates has seen pricing become less aggressive, with a September hike now seen as less than a 50% call,” Knightley said.

An escalation in the Iran war poses a risk to the outlook by threatening to push oil and consumer prices higher while potentially weighing on growth. With inflation above the Fed’s 2% target, an extended supply shock would make policymakers’ job harder.

Economists also trimmed their estimates for average payroll growth this year to 66,000 a month and see similar monthly job growth in 2027.

From the horses’ mouths (via The Transcript):

The US consumer:

• “What we’ve seen so far is what we’ve seen all year long, and that is we’re operating in what we would describe as a K-shape economy, where the higher income consumer spends and they’re spending on innovation and they’re spending on things to modernize their home and the lower income consumer is a little bit more cautious and a little bit more uncertain based on all of the macro factors that we all know so well. And we haven’t seen anything different in the start of this quarter that we saw in the first quarter.” – Lowe’s Companies CEO Marvin Ellison
• The categories that are related to big-ticket discretionary are those categories and merchant divisions that sort of continue to lag. And that’s what we’re dealing with, that’s what we’re managing through, and that’s where we’re trying to lean in and provide additional value where we can.” – Lowe’s Companies CFO Brandon Sink
• “As reported in our release, net sales for the month came in at $23.12 billion, an increase of 10.7% from $20.89 billion last year. Reported comparable sales for the month were as follows: U.S., 10.3%; Canada, 4.2%; Other International, 6.0%; total company, 8.9%; digitally-enabled, 17.7%…Our comp traffic or frequency for the month was up 3.6% worldwide and 3.3% in the U.S.” – Costco Wholesale Director of Financial Planning Andrew Yoon
• “In the U.S., our largest market, economic growth and our industry are being driven by high levels of employment, rising household wealth, resilient consumer spending, strong corporate profits and huge amounts of investment going into technology, energy, manufacturing and other areas of the economy. With this economic momentum expected to continue, we are confident in the underlying factors driving our U.S. RevPAR growth.” – InterContinental Hotels Group CEO Elie Maalouf
• “…the experience economy is sort of like what is it at the highest level, it’s really touching on this overarching concept that consumers are favoring experiences and that the allocation of especially affluent and aspirational consumers towards experiences is something that has an above-average discretionary growth rate tied to it.” – Shift4 Payments CFO Christopher Cruz

China consumer:

• “Basically, as I said earlier, that the macro is still bad, sloppy, and people are cautious in spending.” – Sohu.Com CEO Charles Zhang
• “…the China consumer and therefore, advertising market remains choppy, and there are some economic or consumption headwinds that may have an impact on advertising trends” – Tencent CSO James Mitchell
• “And importantly, while not every sector of the economy is doing very well, like the residential sector is still in a slow but certain turnaround, but it’s slow. In the residential sector, travel is strong. Domestic trips are up; international inbound now to China is a growing segment.” – InterContinental Hotels Group CEO Elie Maalouf

The Art of the Self-Deal Thoughts on how Trump-era corruption is affecting Americans as a people.

I’m thinking about the deeper effects of governmental corruption in the Trump era, and why it leaves many not only indignant but uneasy. I suspect it’s doing something to us as a people. The thoughts were prompted by a poll this week from Reuters/Ipsos, which Reuters headlined “Most Americans Believe Trump Has Inappropriately Profited Since Returning to Power.” It reported that 69% of respondents see his personal business interests as influencing presidential decisions. Two-thirds of independents, half of Republicans and 9 in 10 Democrats shared that view.

Republicans, God bless them, were split on whether graft under Mr. Trump has gotten worse or better or stayed the same, which makes that polling question a case study in how bright people are capable of not seeing what they don’t want to see.

We’ll quickly posit what we mean by Trump-era corruption. I see two general areas, personal enrichment and the use of government to satisfy private goals. (…)

An odd thing about all this is the absence of furor. There is no broad public outcry. Why? Because corruption is a constant and “the other side is dirty too.” Because the scandal threshold has skyrocketed. President Trump walked into history dragging a long tail of litigation, accusation and lawsuits behind him. He never sold himself as a man of moral rectitude, and most supporters didn’t think that’s what they were buying. Jimmy Carter’s shaking down the system to see what coins fall out would have been news, Donald Trump’s doing the same is Tuesday.

And there’s the sheer scale: The extraordinary becomes ordinary through repetition; scandals add up and become a blur, not a call to action. But the country pays a cost for all this. Institutionally, everything happening today sets a precedent. Every abuse we accept widens the range of possible misbehavior for the next administration.

Corruption is more dangerous, has a more deteriorating effect, than bad policy. Bad policy can be reversed. Corruption works its way into a system and changes its nature. (…)

But I suppose the larger threat of governmental corruption is that it hurts the public’s morale, its sense of seeing itself as a moral actor to whom politicians have to answer. Our entire system of government assumes a citizenry that polices its politicians, that says “You can’t do that, this office isn’t yours, your powers were lent to you for public purposes.” If the public shrugs and looks away, Americans will lose the habit of thinking of themselves as entitled to a clean government. And they’ll have to admit they surrendered their own views to the views of the tribe.

It is the public’s role to uphold republican standards. In the past, a politician caught selling an office, taking money from interested parties, using governmental machinery for personal revenge was supposed to fear not only legal action but disgrace.

Citizens derive a certain dignity from believing that we enforce the rules. It reminds them who’s in charge: them. You’re giving up a lot when you give that up. (…)

As always, the whole world is watching. What it has seen lowers the esteem in which it formally (if grudgingly) held Americans. It embarrasses us before the world. It hurts our heart a little. We were the morally rectitudinous Doughboy GI Marshall Planning JFK and Ronnie People who made the wall come down. We did our best each generation to be equal to our reputation, or at least to have some class. There are foreign-policy implications to all this. Some day we’ll need friends and see only the satisfied spite of the previously jealous.

Nothing good comes from this. When corruption is allowed, it governs not today but tomorrow too.