FLASH PMIs

Eurozone: Downturn in eurozone private sector eases in June as inflationary pressures show signs of softening

Provisional PMI® survey data for June signalled a further reduction in business activity across the eurozone’s private sector amid sustained falls in new orders.

Underlying data pointed to a slower fall in services activity, while manufacturing production continued to rise modestly. New business decreased for the fourth consecutive month, albeit slightly and at the slowest pace since March. A renewed and marginal increase in manufacturing new orders was insufficient to counteract a further fall in services activity.

A slight drop in employment was also recorded again.

Meanwhile, there were signs of inflationary pressures softening, with input costs rising at the slowest pace since the outbreak of war in the Middle East and output charges increasing at the weakest rate in three months. Manufacturers continued to signal sharply lengthened suppliers’ delivery times, while the recent spell of rising purchasing activity came to an end.

Most of the responses used in the calculation of the June flash PMI data were received prior to the signing of the memorandum of understanding for a cessation of hostilities between the US and Iran on June 17th.

Japan: Stronger rise in business activity across Japan in June, but rate of cost inflation hits near four-year high

The latest Flash PMI® data, compiled by S&P Global, pointed to the strongest rise in total business activity across Japan’s private sector for three months in June.

This was supported by a quicker increase in manufacturing output and a renewed upturn in services activity, with both sectors reporting firmer demand conditions. Greater amounts of backlogged work meanwhile encouraged firms to expand their payrolls again.

Demand conditions also strengthened across Japan during June, with new business at the composite level rising to the greatest extent in four months. Steeper increases in new orders were seen across both the manufacturing and service sectors. Notably, goods producers signalled the quickest upturn in sales since January 2022, which was partly linked to stock building efforts among clients due to ongoing supply disruption and concerns over future price hikes linked to the war in the Middle East.

Whilst external demand conditions also improved, new export business rose only marginally overall, with the rate of growth the slowest seen in six months. Sector data indicated that manufacturers recorded a slightly softer but still solid rise in new export orders, but services companies signalled a further marked drop in foreign demand.

However, input costs rose at an accelerated pace that was the fastest since July 2022, which led to another substantial increase in average selling prices. Furthermore, concerns around inflation and supply chain disruption due to the war in the Middle East meant that forecasts for the year-ahead remained muted by historical standards.

“It is important to note that the current period of growth is partly being driven by stock-piling efforts, and these efforts are likely to fade in the months ahead,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

Trump’s New US Tariff Wall Shakes Up Winners, Losers Lineup

(…) To make tariffs more legally sound, many countries are subject to investigations under accusations of trade unfairness — with the most prominent two focused on forced-labor rules and excess industrial capacity.

The actions were brought under a legal authority known as Section 301 of the Trade Act of 1974. Not all countries are targets of the probes, and when Trump’s temporary 10% across-the-board tariffs expire at the end of July, some stand to gain a competitive edge with a lower rate than they had before. Others could end up worse off.

With Trump, though, it’s wise to assume a wild card in policy making. On trade, that’s been the administration’s use of exemptions from tariffs for imports it doesn’t want to make more costly to buy from abroad, like AI equipment or farm tractors or Brazilian coffee. On the flipside are inclusions that can add items and broaden the scope of tariff targets.

Another unresolved issue is what happens with economies like India, the European Union, Japan, South Korea and the UK that signed trade agreements capping their tariff rates at lower negotiated levels — especially on automobiles. US officials have sought to reassure them that those agreements remain intact. (…)

At first glance, Canada appears better positioned, with tariffs on imports lower than the April 2025. There are key exemptions for USMCA-qualified goods. Still, industry-specific tariffs on metals have strained Canadian industry. (…)

Mexico is pushing for relief on sector-specific auto tariff rates, arguing that their rate exceeds those of some vehicles imported from South Korea or Japan. As part of the ongoing USMCA talks, Washington is pushing Mexico to implement a rule for cars in the North American trade zone to be comprised of at least 50% American-sourced goods. The talks will continue through at least July, making it unclear how Mexico’s trade impact will shake out in the near term.

The EU is under pressure from the US to codify its trade agreement. The European Parliament and EU countries still need to vote to ratify the finished text before a July 4 deadline imposed by Trump. The US president said that if the deal isn’t in place by then, he will hike tariffs on European automobiles to 25% from 15%, though Greer has sought to assure Brussels that “a deal’s a deal.”

The parliament did its part last week, voting to approve the pact. EU countries are expected to give their final nod later this week, the last step in a fitful, yearlong ratification process.

But just last week, Trump launched a 301 investigation against Germany, citing “persistent underpayment for innovative pharmaceutical products.” In response, Chancellor Friedrich Merz said he expects the US to stand by its trade commitments with Europe, adding that decisions on pharmaceutical payments are a domestic matter.

China is in a vastly better position than it was at the top of Trump’s second term. During his presidential campaign in 2024, he vowed to implement a 60% tariff on China. The effective rate now sits at roughly 21%, according to analysis by Bloomberg Economics.

The US and China are set to revisit their tariff truce this fall. While much could happen between now and then, Chinese leader Xi Jinping demonstrated the country’s leverage over the US economy by blockading its rare earths exports last year.

‘Overtake the world’: Kim Jong-un calls for expanding nuclear arsenal

North Korean leader Kim Jong-un has called for a significant expansion of the country’s nuclear arsenal. According to state media reports, he has asked officials to strengthen defense capabilities “with a goal of overtaking the world.” The remarks were made during a three-day plenary meeting of the ruling Workers’s Party of Korea (WPK).

Trump called Kim a “madman” and “Little Rocket Man” in 2017, threatening to “totally destroy North Korea with fire and fury like the world has never seen.” during a speech at the United Nations.

He also said Kim was a “pretty smart cookie”.

Bob Woodward’s book “Rage” revealed what Trump described as “love letters,” in which Kim referred to Trump as “Your Excellency”.

In a June 2019 letter to Kim, Trump wrote that “you and I have a unique style and a special friendship.”

“Only you and I, working together, can resolve the issues between our two counties and end nearly 70 years of hostility, bringing an era of prosperity to the Korean Peninsula that will exceed all our greatest expectations — and you will be the one to lead,” Trump wrote. “It will be historic!”

On December 30, 2019, Trump told Woodward: “If I weren’t president, we would have – perhaps it would be over by now, and perhaps it wouldn’t – we would’ve been in a major war.”

Trump argued he “gave up nothing” by meeting with Kim, although North Korea hasn’t followed through with the denuclearization steps that the US was seeking. Trump’s critics say the meetings provided Kim the legitimacy on the world stage he desperately sought without curtailing Pyongyang’s nuclear program.

“The [CIA] analysts marveled at the skill someone brought to finding the exact mixture of flattery while appealing to Trump’s sense of grandiosity and being center stage in history.” (CNN)

In 2025, Trump boasted of having a “very good relationship” with Kim. “He was very good with me … We got along great,” claiming to know Kim “better than anybody, almost.”

South Korea’s Lee warned in 2025 that the number of North Korea’s nuclear weapons has increased 2.5 times in just the last few years. The nation is now in the “final stages” of developing intercontinental ballistic missiles (ICBMs) that “can target far away distances,” he said, adding: “The situation is deteriorating.”

In April 2026, Trump highlighted that Kim had been speaking “nicely” about him. He even bucked decades of US policy by stating North Korea was “sort of a nuclear power”.

On June 14, “Trump posted an uncaptioned photo of himself and North Korean leader Kim Jong Un taken at a meeting in Singapore in 2018.” (Aljazera)

Last week:

United States President Donald Trump intends to shift his focus to North Korea’s nuclear programme now that Washington has reached an agreement with Iran, South Korea’s president has said.

Lee Jae Myung said in a news conference that Trump told him on Friday at a G7 dinner that “the time had come to pay attention to the North Korea issue,” a comment that could signal renewed US focus on Pyongyang’s nuclear capabilities. (Aljazera)

A “pretty smart cookie” indeed.

• “In April, Kim said North Korea could pre-emptively use nuclear weapons if threatened, saying they would “never be confined to the single mission of war deterrent.” Kim’s military has also test launched nuclear-capable missiles that place both the U.S. mainland and South Korea within striking distance.” (CBC)
• In 2023, “following a launch of North Korea’s most powerful solid-fuel intercontinental ballistic missile, Kim declared the successful test was a “clear warning” that his military could hit anywhere in North America if Washington made a “wrong decision”.” (DW News)

No worries. Trump Monday said “”I’m a problem solver, I get problems solved real fast — including with Bibi.”

Chart-Topping Pacific Ocean Heat Augurs Unusually Strong El Niño

Exceptionally warm sea surface temperatures in the Pacific Ocean are setting the stage for a potential “super” El Niño of record-breaking intensity.

Temperatures in a part of the equatorial Pacific that’s closely monitored to define El Niño and La Niña events are currently at 29.4C (84.9F), or 1.7C above the 30-year average, according to the latest data from US National Oceanic and Atmospheric Administration. That’s on track to be the largest warm deviation from the historical average for June since 1981, the data show.

El Niño is a naturally occurring climate phenomenon that can cause drenching rains in one part of the world and drought in another. (…)

Scientists “have seen water temperatures like this before, but they have never seen the intensification, the rate of change, as we moved out of La Niña” earlier this year, Horton said.

The US Climate Prediction Center, part of NOAA, currently predicts an 89% chance of El Niño reaching at least strong intensity by December, and a 62% that it will be very strong by that time.

While a strong El Niño makes severe weather impacts more likely, the correlation is not a certain one. Another consideration is how long the El Niño lasts, and current forecasts do not provide much guidance beyond early 2027.

A minor, short-lived El Niño will not break global temperature records, Horton said, while a minor and long-lived one will. “And if you have a major one that’s moderate to long-lived, we’ll smash them,” he said.

“Long El Niño can last up to 18 months,” Horton said. “But maybe we’ll stay in it for 24 months. You don’t know.”

Science News:

In addition to raising global temperatures, El Niños alter the position of the Pacific jet stream, meaning some areas become drier, while others become wetter. For the United States, one of the most significant impacts is on tropical cyclones: While El Niño years typically can mean more numerous and intense cyclones in the Pacific, changing wind regimes can hamper hurricane formation in the Atlantic.

The 1997–98 event was the strongest on record. It raised the average global temperature for that period by 1.5 degrees Celsius, and led to devastating extreme weather events. Those included torrential rains and floods in Peru and East Africa that in turn triggered an outbreak of Rift Valley fever in the region; droughts that kicked off deadly wildfires in Southeast Asia; powerful storms that resulted in catastrophic flooding and landslides in California. Soaring ocean temperatures caused bleaching in about 16 percent of the world’s coral reefs.

Such strong El Niños leave a long mark on the global economy, researchers reported in 2023 in Science. Global economic losses attributed to the 1997–98 event are estimated to be about $5.7 trillion. The 1982–83 event cost the world an estimated $4.1 billion.

Whether this year’s event will reach super status is not yet certain. But because the event is occurring on top of already rapidly warming global temperatures due to human-caused climate change, its impacts will likely be dramatic even if the event turns out only to be moderately strong, Di Liberto says. “It would not take a very strong El Niño to see records broken this year.”

• Intensifying Heat Wave Threatens to Set Records Across Europe

(…) The heat wave is spreading north from mainland Europe, where it’s plagued France for nearly a week. Extreme temperatures, fueled by a high-pressure heat dome directed across the continent by atmospheric changes from a developing El Niño, have already been linked to several deaths.

Temperatures in southern England will rise rapidly on Tuesday, before climbing to a peak of at least 39C on Wednesday and Thursday, according to the Met Office. That would shatter the all-time high for June of 35.6C, reached in 1957 and 1976. (…)

Red heat warnings have also been issued for Germany, Luxembourg and Switzerland, with amber and yellow alerts in effect for much of mainland Europe. (…)

The heat wave is putting pressure on Europe’s power grid and energy markets, with record cooling demand. Supply has been constrained by weak wind generation and restrictions at some French nuclear plants, where hot river temperatures can limit reactor output. The squeeze pushed French and German day-ahead electricity prices higher on Monday.

In Rome, the cabinet approved economic provisions to protect workers in case of disruptions due to excessive heat. The decree allows certain companies to suspend or reduce work hours during heat waves and gain access to wage-supplement benefits, according to a statement from the government. (…)

• A Stock Trader’s Guide to Navigating a Rare ‘Super El Niño’

A high probability of a “Super El Niño” heading into 2027 may drive up temperatures in some parts of the world, sending power demand surging, hurting crop yields and reigniting inflationary pressures. That could complicate the outlook for central banks, posing a risk to global equities trading near record highs.

“El Niño arrives at an especially sensitive moment,” said Ole Hansen, head of commodity strategy at Saxo Bank. “The global economy is still adjusting to the inflationary consequences of the Iran conflict, while supply chains remain vulnerable following months of disruption.” (…)

The last time the world faced such a strong El Niño, in 2015 and 2016, the result was more than $7.8 trillion in lost productivity, based on a Dartmouth College study.

Crop producers are likely to bear the brunt of a stronger El Niño, though the impact will vary across regions and commodities. (…)

Fertilizer firms could be among the biggest beneficiaries of El Niño if the weather pattern tightens global crop supplies, supporting demand for key nutrients including nitrogen, phosphorus and potassium. (…)

“All signs point to a rare El Niño event emerging, creating cooler summer and warmer winter temperatures in the US and thus a bearish natural gas demand environment,” Truist Securities Inc. analyst Gabe Daoud wrote in a note.

In Asia, higher-than-normal temperatures will boost air-conditioning use and strain power grids when energy prices are already elevated. (…)

We believe that we will win

The USA entered this year’s World Cup with high hopes but middling realistic expectations. After two thrilling wins for the host nation, even soccer-skeptical sports fans are boarding the bandwagon, Axios’ Alex Fitzpatrick writes.

• A 4-1 blowout against Paraguay and Friday’s 2-0 win over Australia allowed USA to clinch Group D, even before this Thursday’s game against Turkey.

That means USA is definitely headed for the knockout round of 32. USA’s first win-or-go-home match is set for July 1 in Santa Clara, Calif. Their opponent is TBD.

Winning the group means USA will play against a third-place team from another group — potentially a big advantage. It also avoids a round-of-16 matchup against defending champs Argentina, The Washington Post notes.

A deep USA run right around the country’s 250th birthday would be an ideal summer kickoff.

• USA Today Sports columnist Nancy Armour sums up the vibes heading into the elimination round: “If you’re not enchanted with the U.S. men’s national team after their 2-0 win over Australia … you’re going to miss out on a whole lot of fun these next few weeks.”

Goldman Sachs puts a 5.1% probability that the US will be in the final against Spain (35.2%), Argentina (38.7%) or France (30.3%). Odds of winning it all: 1.7%.

BTW, today’s WSJ Editorial Board:

America’s Immigrant Soccer Team A quarter of the World Cup squad was born outside of the U.S.

The Supreme Court is expected to rule soon on President Trump’s birthright citizenship order. Win—or more likely—lose, he might take note that the success of the U.S. men’s national soccer team in this year’s World Cup is the product in part of America’s historically welcoming immigration system and automatic grant of birthright citizenship to children born in the U.S.

The U.S. team last week clinched a spot in the knockout round after defeating Australia. A quarter of its players were born outside of the U.S., (…)

Many players are also first- or second-generation Americans of diverse descent. (…)

Star striker Folarin Balogun, who scored two goals in the opening game victory over Paraguay, was born in Brooklyn in 2001 to a Nigerian mother visiting New York from London. Two months later she returned with him to the U.K. where he grew up. Under Mr. Trump’s birthright citizenship order, he wouldn’t have automatically received U.S. citizenship since his mom was a temporary visitor. He may not have been eligible for the U.S. team.

As our friend Stuart Anderson noted in a recent piece for Reason magazine, “hiring athletic talent from around the world has enhanced the quality of play and attracted more fans domestically and internationally” for U.S. soccer and other professional sports. America’s World Cup men’s team shows again how bringing in foreign talent can be a win for the individuals and for the country.

How about baseball, football and basketball…

FED WATCH

My takes on Kevin Warsh’s first FOMC:

• He succeeded in showing (1) a united FOMC (12-0 vote) and (2) his own independence from Trump.
• He was clearly hawkish with much more emphasis on inflation than on employment.
• “We missed the inflation target for 5 years. This committee will deliver.”
• Inflation forecasts were raised for 2026 and 2027. Core PCE went from 2.7% to 3.3% for 2026 and from 2.2% to 2.5% for 2027, all above current consensus of 3.1% and 2.3%.
• Monetary policy is currently “uneven”: “clearly restrictive on housing, tough to say that for anywhere else”. Housing is 16% of US GDP, anywhere else is 84%. Uneven?
• Participants were evenly split between no hikes and one or more hikes (6 for multiple hikes).
• Warsh, not a dot plot fan, did not vote even though he could have kept the 2026 dot from rising.
• Nine members now project hikes by June 2027 vs zero in March. Just one member now sees a cut by June, vs 12 in March.
• Inflation should be measured “to the left of the decimal”. So 2.0% is not a hard number and 2.5% may be acceptable. So “this committee will deliver price stability” is not tied to 2.0%.
• AI may be inflationary over the near term but should drive productivity longer term.
• Fed communications are going back to near-Greenspan style
• Shorter commentaries and explanations. Make-your-own-guess of Fed thinking means more volatility.
• In his view, financial markets should not focus on Fed’s intentions but on actual data. Markets “are the best source of information to judge what policy should be”. And the Fed should use financial markets as inputs. All that sounds a little circumvoluted.
• The FOMC needs better, more up-to-date data.

A good case in point is the all-important employment data. The BLS monthly survey is out the first Friday of each month about three weeks after the reference week that includes the 12th of the prior month.

• The payroll (establishment) survey’s first estimate is preliminary and is based on an incomplete set of employer responses; historically BLS cites initial collection rates around two‑thirds of the sample by the first publication, rising close to 90–93% in subsequent months.

• BLS then issues two scheduled monthly revisions: “second preliminary” in the following month and “final sample‑based” two months after the initial release.

• After those three “vintages,” a larger, once‑a‑year benchmark revision aligns the survey with near‑census administrative data (state unemployment insurance tax records), implemented with the release of January data.

The initial release is the market‑moving one because of its timeliness, but subsequent revisions can be significant as everybody knows.

High‑frequency series from Indeed or LinkUp postings are “observed” web‑scrape data rather than a sampled survey. The platforms continuously update the underlying postings in real time.

This chart plots the JOLTS data (last data point April) with Indeed Job Postings (last data point June 12). The recent trend is rather weak:

The second chart plots Indeed Job Postings against the the YoY % change in the BLS payrolls (last data point May). Yearly payrolls growth has stalled with a weak trend.

Based on Linkup data (through June 14),  US labor demand is in a clear downtrend, -3.9% from its mid-April peak. It has been free falling since mid-May, right when the last BLS survey was done.

Maybe Warsh et al. should be a bit more worried about the labor market.

College graduates must be worried as Apollo Management illustrates below. The unemployment rate for recent graduates is well above pre-pandemic levels and historically very high (my red line), not a sign of a healthy labor market, is it?

OIL PRICES WATCH

Oil prices dropped sharply after the US-Iran MOU (or MOM, memo of misunderstanding), “fueling” hopes for slower inflation. We’ll see how fast tankers can exit Hormuz and reach their final destinations. (Charts from oilprice.com).

We also need to see how OPEC manages production vs netbacks in what could be a completely new oil era.

US production has increased during the war …

… but for exports mainly. Commercial crude oil inventories are at their 5 year low, as are US strategic reserves.

Meanwhile, gasoline stocks are critically low as the driving season begins.

BTW:

• The White House has allowed its waiver of Russian oil sanctions to expire on June 17 after President Trump suggested the US-Iran ceasefire agreement will boost global crude supply, ratcheting pressure on Moscow as its oil exports soared to 6 million b/d in May.
• Another long-term impact from the war: Saudi national oil firm Saudi Aramco is actively seeking to develop more international crude oil storage facilities on the heels of the ongoing US-Iran conflict, currently operating several tank farms in South Korea, Japan and Egypt.

Xi Jinping wants China to boost demand. Why isn’t it working?

(…) “What we’re seeing here is a renewed slowdown in the economy,” said Frederic Neumann, chief Asia economist at HSBC. “Some of the optimism at the beginning of the year is beginning to fade again quite quickly.” (…)

Analysts said the decline in retail sales was also partly being driven by the waning use of a goods trade-in programme, which has heavily affected sectors such as household appliances and autos. (…)

Investment, meanwhile, is tumbling. In addition to the property slowdown, high input costs linked to the war in Iran are weighing on infrastructure investment, according to Logan Wright, an analyst at Rhodium. (…)

The metric also declined last year, after Xi called for a crackdown on excessive industrial competition, and later hit out at wasteful spending. Some analysts accordingly saw that decline as a reflection of under-reporting, as well as possible data revisions, pointing to contradictions with other indicators. (…)

There are few signs of a more substantial policy shift, especially in terms of consumer stimulus. Beijing’s GDP growth target is the lowest in decades but still aims to hit at least 4.5 per cent. (…)

Shanghai Securities News informs us that China is accelerating its nationwide urban renewal efforts through unprecedented financial and policy support from both central and local governments, a push that is expected to unlock trillions of yuan in new investments over the next five years. 

Beijing is also spearheading a major push to spur AI consumption. Another plan (Who got a plan?):

• China will ramp up fiscal support to spur AI consumption while advancing broader measures including smart product rollouts, e-commerce integration and service upgrades. 
• Authorities will coordinate existing funding channels to expand AI adoption in consumer markets, implement policies to promote purchases of digital and smart products. 
• Encourage local subsidies under trade-in programs for next-generation intelligent devices. 
• Provide consumer loan interest subsidies to support AI‑related purchases, expand tailored financial products and services for AI consumption, and leverage a national AI industry investment fund to drive adoption. 
• Plans to promote rollout of next-generation AI devices such as smartphones, computers, smart home systems and wearable technologies, alongside humanoid and service robots for households and elderly care. 
• Deepens AI integration in e-commerce, logistics and retail, supporting smart stores, digital human livestreaming, intelligent customer services and automated delivery pilots. 
• Calls for expanding AI applications across services including tourism, education and healthcare, while improving infrastructure, standards and safety governance.

From the FT:

Goldman Sachs analysts last month predicted that use of AI agents would result in a 24-fold increase in token consumption by 2030 and that the huge rise in demand would exacerbate a shortage of chips over the next 12 to 18 months.

Since the start of the year, Chinese AI models have overtaken their US counterparts in token consumption, according to data from OpenRouter, an aggregation platform that allows users to access multiple AI models.

Meanwhile, some companies have told workers to use open-source models that can be run locally on their own servers or personal devices, reducing the bill they pay to AI labs and cloud providers.

On AI, both the US and China have shifted from regulation towards direct participation. Governments have long subsidised or protected strategic industries.

But what is new is their growing willingness to become shareholders in frontier AI laboratories — treating them less as software start-ups and more as critical national infrastructure.

That distinction carries profound implications. Ownership creates influence. Once governments become equity holders, these AI companies face complex questions that traditional governance frameworks were never designed to resolve: how to balance national security objectives with shareholder returns; how boards should navigate tensions between commercial growth and strategic priorities; and whether they can simultaneously serve global markets while advancing national goals.

Most observers still view OpenAI and DeepSeek primarily as competitors. They are. But they are also expressions of the same structural trend: the world’s two largest economies showing a willingness to move state capital into increasingly strategic layers of the AI stack. The first phase focused on chips, the second on models. The next may concern the ownership and governance of intelligence itself.

From Axios last Friday:

Like its AI policy, the Trump administration’s AI team is taking shape on the fly.

Departures among key White House officials, combined with rapid advances in technology, are shaking up who’s taking the lead on AI policy in the administration.

Silicon Valley figures David Sacks and Sriram Krishnan have served as key architects of the administration’s AI agenda. But with Sacks stepping back from day-to-day involvement and Krishnan preparing to leave, influence is shifting inside the White House to a broader group of officials and aides.

Here’s who’s running the show, — for now.

Commerce Secretary Howard Lutnick. Lutnick’s signature was on the letter that sparked the latest confrontation between Anthropic and the administration, ultimately leading to the takedown of the company’s Fable and Mythos models. Last week, Lutnick imposed export controls on Anthropic, effectively creating a licensing regime that could eventually impact other AI labs.

Chris Fall at Commerce’s Center for AI Standards and Innovation has been holding technical meetings in D.C.

Treasury Secretary Scott Bessent. Bessent does not directly oversee AI testing. Yet he was the point of contact when Amazon raised concerns about Anthropic safety issues and was among the few Cabinet members flanking the president during a G7 press conference.

Bessent is viewed as “the more reasonable actor” compared to Defense Secretary Pete Hegseth, who has been public about his disdain for the company, said one source familiar with the administration’s thinking.

“Bessent is trusted by the private sector and critical infrastructure operators as a sober actor,” another source familiar said.

White House chief of staff Susie Wiles. Wiles, a veteran political strategist, has not typically been involved in day-to-day AI policy.

But she was receptive to Bessent’s concerns about how Anthropic’s Mythos could impact the financial sector, helping to reopen lines of communication with the company.

National Economic Council’s Ryan Baasch. Baasch is said to be the person carrying the torch inside the White House for Sacks and Krishnan.

Baasch has worked alongside the two advisers to influence AI policy on Capitol Hill and to push federal preemption of state AI laws.

National Cyber Director Sean Cairncross is also holding technical meetings in Washington, but a clash with Bessent over the administration’s AI response has deepened following the latest Anthropic dispute, sources familiar tell Axios.

Cairncross believes that Treasury has become too involved, while Bessent and allies in the White House believe Cairncross has not met the moment with the necessary urgency.

Cairncross’ head of policy and senior adviser Thomas Lind plans to leave, further depleting the Trump administration of technical expertise.

None of the above are engineers.

From the U. of Virginia’s Data and Policy Institute:

Artificial intelligence is at the core of the Chinese Communist Party’s (CPC) vision for national security and technological self-reliance.

Over the course of decades, Chinese leaders have developed layers of national policy that align government agencies, private companies, the military, and academia on the development and implementation of this emerging technology.

China’s AI ecosystem is rapidly developing technological breakthroughs that expand its global influence—and the political control of the CPC. Today, China’s centrally planned AI strategy has made it a peer competitor with the US, whose less regulated AI ecosystem is mostly led by private tech companies. 

The CPC built and layered its AI strategy atop decades of ideological and institutional planning. From Deng Xiaoping’s reform era to Xi Jinping’s digital governance, China developed AI not as a standalone policy initiative, but rather folded it into evolving doctrines of modernization, centralization, and techno-political control.

While not himself an engineer, Deng Xiaoping since 1978 deliberately promoted technically trained specialists, engineers and technicians, into positions of power, seeing technical expertise as essential for modernization; this shift is what produced the later era of engineer‑leaders like Jiang Zemin (1993-2003), Hu Jintao (2003-2013), and Xi Jinping.

In the US, the only true engineer‑president was Herbert Hoover, a mining engineering from Stanford in … 1895.  Jimmy Carter, though not formally engineer, had substantial engineering training and practice in the US Navy.

Not that engineers are better politicians, but understanding technology is clearly a plus, particularly nowadays.

Goldman Sachs:

The Chinese government is restructuring the economy by shrinking the property sector and bolstering the technology sector. This transformation is clearly reflected in physical output data. Compared with 2019 levels, production of industrial robots has tripled, and semiconductor production has more than doubled, in sharp contrast to the decline in construction materials such as glass and cement.

The divergence is also visible in equity market performance. The Shanghai Composite Index has been largely flat year-to-date, but beneath the stable aggregate index, the information technology sector index has rallied by over 50%, while the consumer discretionary sector index has slid by more than 25%. (…)

According to NBS officials, high-tech manufacturing value-added grew 15.1% yoy, far outpacing overall IP growth of 4.5% yoy in May. In contrast to the 4.1% yoy decline in overall FAI in January-May, investment in the information transmission industry (which includes AI computing), R&D, and high-tech sectors increased 30.4% yoy, 9.3% yoy, and 4.5% yoy, respectively.

On the surface, China’s AI capex appears to fall far short of that in the US. (…). However, this does not mean China’s computing power is only a fraction of that in the US. As of mid-2025, installed data center capacity in China was already 60% of that in the US.

Two factors contributed to China’s low hyperscaler capex relative to its data center capacity. First, the cost of building data centers is much lower in China than in the US. Second, a significant share of China’s AI-related capex is conducted by the government. In the 15th Five-Year Plan (2026-30), for instance, policymakers plan to invest RMB2tn in computing power networks, including data centers. China’s push for AI development and adoption is real, even though the way it is financed and applied differs significantly from the US.

Turbocharged Earnings Are Pushing Stocks Higher. There’s a Catch. The AI-investment boom is leading to big spending, but the bill comes later

The stock market is salivating over big increases in corporate earnings, but there’s a catch. Much of the growth is due to a lag in when the costs of huge AI investments hit the books. (…)

When Nvidia sells its chips, for instance, it books the revenue and earnings quickly. But its end customers treat the purchases as capital assets, meaning they defer the upfront costs and recognize them only gradually as depreciation on their income statements.

So, while the outlays immediately hurt the customers’ free cash flow, they get to spread out the acquisition costs over many years on their income statements. In addition, they might not have to start recognizing depreciation expenses until long after the purchases if, for instance, the equipment is going into a new facility still under construction and isn’t being put to use immediately.

Todd Castagno, an accounting analyst at Morgan Stanley, calls the current period “a golden window where everybody looks good.” Revenues and margins look strong across the AI ecosystem at both the hardware suppliers and the big-spending buyers.

There is nothing unique here about the accounting treatment. This is the normal way assets get booked and then gradually written down. What stands out is the sheer size of the capex boom.

A big wave of depreciation expense is coming, and the size of the hit to hyperscalers’ income statements is far from clear. Estimates of hyperscalers’ future capital expenditures keep climbing sharply, and analysts’ estimates of future deprecation expenses diverge widely. (…)

Companies have wide discretion to shorten or lengthen their fixed assets’ useful lives, which changes their yearly depreciation numbers. And a lot of the data-center build-out is being financed off-balance-sheet, which adds to the complexity. Many analysts don’t even attempt to isolate the specific depreciation of AI equipment, and instead lump it into a broad D&A estimate. (…)

The consensus view for now is that capex growth will taper off after next year while revenue keeps surging, allowing free cash flow to rebound in a V-shaped recovery. But nobody really knows how this will play out.

The stakes are high for investors trying to make sense of the numbers, as well as for passive index investors. The forward price-earnings ratio for the S&P 500 using estimates for the next 12 months is about 22 times earnings, which is above historical averages even before depreciation expenses ramp up.

A lot of today’s earnings are coming from spending that won’t appear on the hyperscalers’ income statements for years. Everyday investors have a great deal riding on whether the AI titans can find the revenue someday to justify those costs.

Paul Kedrosky

• Strip Out AI and Energy, and the S&P 500 Is Down

Since January, the entire S&P 500’s gains have come from just two corners of the market, AI and energy, while everything else is actually trading at less than where it started, see chart below. (Apollo)

Retail Investors Remain the Market’s Strongest Source of Demand

Through our unique position as the #1 US Retail Market Maker [Citadel Securities], executing ~35% of all US-listed retail volume, we continue to observe the highest and most persistent levels of retail participation on record. At the same time, the retail investor is evolving. Unlike previous periods of retail enthusiasm, today’s retail flows increasingly resemble those of institutional investors.

Retail trading activity has officially entered a new regime. The defining characteristic of today’s retail investor is not just enthusiasm, but persistence.

May shattered previous activity records in cash equities, surpassing the prior monthly high set in January 2021 by more than 10%. Retail cash equity volumes ran 60% above the 2025 average and more than twice the 2024 average. From this peak, activity has accelerated further in June, with volumes this month tracking 9% above May’s record.

Nine of the ten largest retail trading days ever observed on our platform have occurred in just the last month, including seven during the first half of June alone. Friday (June 12) marked the largest single day of retail net buying in our dataset, surpassing the previous record by 50%.

 

Options activity is similarly breaking records. Average daily options volume on the Citadel Securities retail platform reached a record high in May, running 20% above the trailing one-year average. Participation has continued to build in June, with volumes surpassing the highs made last month by another 20%.

New records are being set almost weekly. The first week of June established a new high for retail options activity, only to be surpassed the very next week. This week is on track to challenge those levels once again.

Retail investors are also deploying more capital, trading a record $5.8 billion of options premium per day during the month of May on our platform. This has already climbed to $7 billion in options premium per day in June.

Rather than only chasing speculative corners of the market, retail investors are increasingly concentrated in the same companies driving benchmark returns and institutional positioning.

Semiconductors sit at the center of this trend. Average daily options premium traded in semiconductor names reached a record high of $1.6 billion in May, more than doubling April levels, running nearly 5x the historical average, and surpassing the previous record by more than 25%. June is already tracking at approximately $1.9 billion per day, 16% above May’s record. (…)

Equity ownership continues to broaden across income cohorts, with the fastest growth occurring among households that historically had the lowest market participation rates.

Since 2010, equity and mutual fund ownership among the bottom 50% of households has increased by more than 570%, outpacing every other wealth cohort. Today, the bottom half of households owns more than $600 billion of equities and mutual funds, a record high.

Despite increased engagement, households hold record cash balances, waiting to deploy capital on market dips. This dynamic only changes when the VIX rises above 30. Today, the VIX is approximately 16.

We observe this “buy-the-dip” behavior on most down trading days in our data at Citadel Securities.

 

Meanwhile, the largest buyer of U.S. equities remains active. Year-to-date, US corporates have authorized more than $925 billion of share repurchases, the strongest pace ever recorded through this point in the year. Technology and Financials account for roughly 57% of all announced buybacks in 2026, reinforcing demand in many of the same sectors already benefiting from strong retail participation and passive flows. Equity issuance remains small even when compared to current buyback demand.

BTW:

 

So, how much cash is there, really?

• Cashed Out: another echo on this theme is investor cash allocations bouncing along the bottom (which has often been a topping sign in the past).

 @i3_invest via @TheChartReport

• Institutions are cash neutral:

@neilsethinew

• No cash? No worries:

The rate of expansion in margin debt is the 4th fastest in recent history, and is consistent with a heightened downside risk alert. I would note that the pervious 3 major topping signals on this indicator did take a few months to work, but the message is pretty clear here. (Callum Thomas offers the next 2 charts)

Source:  Topdown Charts Professional

• Similar to what we saw with investor allocations to cash probing the lows, investors in aggregate are running record low allocations to treasuries.

• Feeding the beast …

• … while the beats wants to be fed:

Since 2002, there have been 17 “sell signals” where the average loss for global stocks over 2-3 months is 2-3%, with a hit ratio of ~60% and max drawdowns of 15-20%. – Michael Harnett, BofA

• Also feeding the beast:

Risk appetite likewise remains hearty in more speculative credit categories, with domestic leveraged loan funds attracting net inflows for 10 consecutive weeks as of this past Wednesday. 

As Bloomberg reports, Wall Street banks are capitalizing on that friendly backdrop to clear their books of “a raft of leveraged loans that they previously couldn’t sell,” with at least a trio of so-called hung deals coming to market of late.  Private equity-promoted firms, meanwhile, have sold $2.9 billion in loans this month with which to pay themselves dividends, per a Tuesday bulletin from PitchBook, already marking the busiest monthly period for such recap deals since January.

Though index-level spreads across investment-grade and high-yield credit remain near their tightest of the post-Lehman Brothers epoch, storm clouds gather above the deep end of the speculative pool. Triple-C-rated bonds tracked by Bloomberg settled yesterday at a 748-basis point option-adjusted spread, up more than 100 basis points from the start of May to mark the largest premium since the Liberation Day episode of spring 2025. (ADG)

This beast also needs feeding:

Pentagon Tells Lawmakers It Needs $80 Billion for Iran War and Other Bills Military officials say the services could run out of money for operations this summer unless Congress passes a new wartime spending bill

FYI:

A trust recession is undermining citizens’ confidence in the future & national pride

Developed nations around the world are suffering from a trust recession, nowhere more than the U.S.

Most Americans don’t trust the government to do what’s right, believing the system rigged by self-dealing elites and corrupt institutions. Per NBC News, “The lack of trust in institutions is also taking a toll on American pride.”

Whereas 85% were “extremely or very” proud to be American in 2006, and 81% said the same in 2016, only 56% say so today.

So What? As long as voters perceive a rigged system they’ll keep voting for “wrecking ball” candidates promising radical change. (Bruce Mehlman)