US and Iran Appear to Postpone Uranium Talks Until Later Date

The US and Iran appear to have put talks about Tehran’s stockpile of highly enriched uranium on the back burner in an effort to end their war, with both sides suggesting it’s a subject for a later date.

Iran said it had “come to the conclusion with the Americans” to postpone the topic until the later stages of negotiations, calling it “very complicated,” Foreign Minister Abbas Araghchi said at a press conference in India on Friday.

Speaking on Air Force One, US President Donald Trump said he’s willing to send US forces to remove Iran’s uranium “at the right time,” suggesting it’s unlikely to be an imminent operation. (…)

• Trump spoke yesterday with Israeli Prime Minister Benjamin Netanyahu about the situation in Iran.
• “We want to make a deal. They are not where we want them to be. They will have to get there, or they will be hit badly, and they don’t want that,” Trump said.
• Tehran “better get moving, FAST, or there won’t be anything left of them,” Trump said on Truth Social on Sunday.
• Trump is expected to convene his top national security team in the Situation Room on Tuesday to discuss military options
• Pakistan’s interior minister visited Tehran on Saturday and Sunday for talks with senior Iranian leaders about the deal for ending the war. Pakistan is the official mediator between the U.S. and Iran.

EARNINSG WATCH

From LSEG IBES:

452 companies in the S&P 500 Index have reported earnings for Q1 2026. Of these companies, 83.0% reported earnings above analyst expectations and 13.3% 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, 78% of companies beat the estimates and 17% missed estimates.

In aggregate, companies are reporting earnings that are 8.2% 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 7.1%.

Of these companies, 78.6% reported revenue above analyst expectations and 21.4% 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 2.1% 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 1.9%.

The estimated earnings growth rate for the S&P 500 for 26Q1 is 28.3%. If the energy sector is excluded, the growth rate improves to 29.6%.

The estimated revenue growth rate for the S&P 500 for 26Q1 is 11.1%. If the energy sector is excluded, the growth rate improves to 11.6%.

The estimated earnings growth rate for the S&P 500 for 26Q2 is 21.4%. If the energy sector is excluded, the growth rate declines to 17.7%.

Recall that Q1 earnings include huge non-operating earnings from some hyperscalers which need to mark-to-market their investments.

In fact, Q1 results include several significant unusual and non-operating earnings that significantly distort trailing earnings, profit margins and full year 2026 estimates.

• The (GAAP) EPS actual for Alphabet for Q1 2026 included a net gain of $37.7 billion primarily due to net unrealized gains on non-marketable equity securities.
• The (GAAP) EPS actual for Netflix for Q1 2026 included a $2.8 billion termination fee related to the Warner Bros. transaction.
• The (GAAP) EPS actual for Meta Platforms for Q1 2026 included an $8.03 billion income tax benefit.
• The (GAAP) EPS actual for Amazon.com for Q1 2026 included pre-tax gains of $16.8 billion included in non-operating income from investments in Anthropic.
• The (GAAP) actual EPS for GE Vernova for Q1 2026 included $4.5 billion in pre-tax M&A gains. As a result, the blended earnings growth rate for the Industrials sector has increased to 20.3% from 3.1% over this period.

Together, we got $70B of unusuals, more than 10% of all S&P 500 earnings in Q1.

That said, Q1 revenues and earnings are nonetheless broadly spectacular:

 

Revenues, which carry no unusual items, are up 11.1% so far in Q1 vs +7.5% expected on Jan. 1.

Total US business sales and nominal GDP are up 5.9% and 6.0% respectively in Q1:

Larger companies are doing better than smaller ones. Also, 41% of S&P 500 revenues are foreign and the USD was 6.7% lower in Q1’26 than in Q1’25, boosting foreign revenues translated in dollar.

I have been warning against the so called “broadening market”. Here’s Goldman Sachs with my emphasis:

Bottom-up consensus estimates for S&P 500 EPS in 2026 and 2027 have each risen by 8% YTD. Within the index, increasing expectations for AI capex spending and higher energy prices have driven the majority of the positive revisions. Excluding AI infrastructure and Energy companies, S&P 500 2027 EPS estimates have been flat YTD.

Compared with numbers at the same time in Q1’26, more companies have pre-announced, none positive and 8 negative. Utes and Consumer Discretionary show the largest negative/positive ratios countered by highest P/N ratios for Health Care and IT.

Watch Big Mo!

On top of a messy earnings season, we also have a market with very bad breath. Per Goldman Sachs:

The median S&P 500 stock now trades 13% below its 52-week high. In the past, sharp declines in equity market breadth have signaled larger than average market drawdowns and increased Momentum factor volatility.

The S&P 500 has returned 10% YTD, with technology accounting for 85% of the index return and the S&P 500 excluding technology returning just 3%. The rally has also driven a 25% return in our Momentum factor during the past three months, one of its sharpest upswings on record. With AI and Momentum moving hand in hand and driving the direction of the S&P 500, many investors have expressed the view that the equity market today is “one big trade” rather than “a market of stocks.”

Since 1980, following 11 other comparable rallies, Momentum usually extended for another month before peaking and turning lower. For the S&P 500, sharp Momentum rallies with the market near a high usually preceded soft returns during the following few months. These episodes included mid-1998, late 1999, mid-2015, and late 2021. Today, we expect the macroeconomic backdrop and the outlook for AI will determine the trajectories of both Momentum and the broad market.

Our study of the sharpest Momentum reversals in the past 100 years showed that previous laggards (i.e., low Momentum stocks) did not just outperform when Momentum crashed, they appreciated in absolute terms.

On the economic backdrop, on May 14, the Atlanta Fed raised the Q2 GDP growth estimate to 4.0%, up from 3.7% on May 8. This is more than twice private forecasts.

Nealy half of the 4.0% expected growth comes from consumer spending and nearly 25% from inventory accumulation. The latter stems from a recent hoarding behavior, because of the war. The former is increasingly at risk from spiking inflation, because of the war.

Bank of America card data show that

Total credit and debit card spending per household increased 4.8% year-over-year (YoY) in April 2026, the strongest monthly growth in the last three years. This followed the already solid 4.3% YoY increase in March.

While higher gasoline prices boosted spending, spending excluding gas still rose 4.0% YoY – the fastest pace in three years and up from 3.6% last month.

BoA’s numbers match last week’s retail sales release, +4.9% YoY after +4.2% in March.

But these are not inflation adjusted. My “retail inflation” proxy is up 4.2% in April (real sales up 0.7%) after +3.2% in March (+1.0%).

BoA’s seasonally-adjusted spending per household increased 0.6% MoM in April (my inflation proxy is up 0.9%), easing from +0.9% in March (my inflation proxy was up 1.7%).

Excluding higher gasoline spending, BoA’s rise in total spending was +0.5%, from nearly flat in March.

This chart from BoA is worrying:

• Clothing store sales are still up 4.2% YoY in April but CPI-Apparel is also up 4.2% that month from 0% last fall.
• Restaurant sales are up 3.1% in April but CPI-Food-away-from-home is up 3.5%.
• Travel spending is up 5.6% but CPI-Air fares is up 20.7% and CPI-Lodging-away-from-home is up 4.6%.
• Spending on durables has been negative over the last 4 months, a period when CPI-Durables average only +0.4% YoY.

Rising and volatile prices are messing with a proper reading of the key consumer sector. Crucially, all 3 inflation lines below are converging towards 4.0%, above wage growth (black). Americans’ resiliency is being seriously tested, particularly given the low 3.6% savings rate and rising credit card interest rates.

Meanwhile, bond investors drove 10-year Treasury yields from 4.0% at the end of February to 4.5% last week, clearly more concerned by inflation than by a consumer-led economic slowdown.

• Global Bond Yields at Multiyear Highs on Mounting Inflation Risk

Global bond yields hovered near multiyear highs as rising energy prices stoked inflation concerns.

While the moves were subdued compared with the rout that swept markets on Friday, 30-year US yields were the most elevated since 2007 and the rate on similar-maturity German debt was the loftiest in 15 years. Japanese government bonds notched the biggest losses, with the 30-year yield surging to its highest since the maturity was first sold in 1999. (…)

“Yields are very high, but they might go higher. The world is awash with debt.” (…)

The fragility was on full display in Japan, where the prospect of a supplementary budget to deal with rising commodity prices has fueled concern about heavier debt issuance. (…)

Japan’s lofty yields will eventually draw more domestic investors back home — though that could act as an additional headwind for the US market.

“What it’ll do though is drive up yields elsewhere, especially, for example, US Treasuries,” said Hooper on Bloomberg Television. (…)

Just “a little excursion” he said!

• Yardeni Urges Fed to Drop Easing Bias or Lose Control of Rates

Ed Yardeni, president and chief investment strategist, said the US central bank should remove its easing bias at its June meeting, given that it is “no longer” appropriate in the current market environment.

“If the Fed fails to remove it, investors will conclude that the central bank is falling behind the inflation curve and will demand a higher inflation risk premium,” Yardeni wrote in a note. “We expect the Fed to hold rates unchanged at the June meeting and shift to a tightening policy stance.” (…)

Higher rates abroad are weakening a key source of demand for Treasuries, forcing the US government to compete harder for buyers at a time of large fiscal deficits and persistent inflation concerns, according to Yardeni. (…)

The view that the Fed may have to delay rate cuts or even raise borrowing costs is shared by other major investors, including DoubleLine Capital LP Chief Executive Officer Jeffrey Gundlach and Pimco Chief Investment Officer Dan Ivascyn.

“It’s just not possible, in my view, to cut interest rates when the two-year Treasury is almost 50 basis points higher than the Fed funds rate,” Gundlach said on Fox News’ Sunday Morning Futures. (…)

Yardeni said (…) a more hawkish Warsh than markets expect could actually work in Trump’s favor by helping to contain long-term Treasury yields.

“By acting hawkishly, Warsh might have a chance of delivering what the White House wants: lower real-world borrowing costs,” he wrote. “Mortgage rates could fall, corporate financing would ease, and Trump can point to declining long-term yields as the economic win.”

BTW, Gundlach also said Sunday that “DoubleLine’s models suggest the next print on the headline CPI is going to start with a four.”

What would rising rates from a hawkish Fed do to this expensive equity markets?

Whither the wealth effect?

There might also be a debt effect:

Topdown Charts Professional

Farmers growing desperate amid rising energy and fertilizer prices

(…) Mark Mueller — a northeast Iowa farmer and president of the Iowa Corn Growers Association — tells Axios that the current landscape is more challenging than at any time since the 1980s farm crisis, when interest rates soared and exports plunged, triggering agricultural bank failures.

The stresses are showing, with rising bankruptcies and lenders becoming more reluctant to provide farmers with operational loans.

“There’s going to be fewer farmers next year than there is this year,” Mueller says.

• Skyrocketing energy prices triggered by President Trump’s Iran war, which led to the shuttering of Strait of Hormuz, a vital passageway for fossil fuels. Diesel averaged $5.67 per gallon as of May 14, up 60% from a year earlier, according to AAA.
• Spiking fertilizer prices and shortages after the Iranians blocked shipments through the strait. 70% of farmers can’t afford the fertilizer they need, according to the American Farm Bureau Federation.
• Disrupted export markets tied to Trump’s tariffs and Chinese import restrictions.
• Global drought and other weather pressures, including climate change. The U.S. cattle herd is at its lowest level in decades, largely due to global drought, per USDA data.

Trump said China’s Xi Jinping agreed to buy “billions of dollars” worth of soybeans during their summit this week but no specific deals have been announced.

China’s Economy Succumbs to Slowdown and Reignites Stimulus Talk

(…) Official data on Monday painted a picture of an economy where booming exports no longer offset deteriorating consumption at home, prompting analysts at banks including Nomura Holdings Inc. and Societe Generale SA to urge bolder measures in support of growth.

Fixed-asset investment unexpectedly shrank 1.6% in the first four months of 2026 from a year earlier, while industrial production grew 4.1% last month — the weakest in almost three years. Retail sales missed forecasts and rose just 0.2% in April, the worst reading since they contracted in December 2022, when China reopened from Covid. (…)

Not a single economist surveyed by Bloomberg had predicted as pessimistic a reading for industry, retail sales and investment. The disappointing performance of the world’s second-biggest economy last month is a reminder of its domestic vulnerabilities, after a global artificial intelligence investment boom sent trade soaring.

Even though many manufacturers are struggling to cope with higher raw material costs, overall exports soared as Chinese tech products found willing buyers abroad. Greater demand for green energy products is also benefiting China.

But a sustained weakening of investment and consumption at home could still bring risks to Beijing’s goal of achieving 4.5% to 5% growth this year.

The April data suggest gross domestic product may expand as little as 4.1% on-year in the second quarter, which could prompt incremental policy easing, according to Macquarie Group Ltd. Goldman Sachs Group Inc. is maintaining its forecast for a GDP gain of 4.7% in April-June, compared with 5% in the first three months of the year. (…)

Investment plunged by around 8% in April from a year earlier, according to estimates from Goldman Sachs and Capital Economics, returning to a similar pace of decline seen in the second half of 2025. Manufacturing and infrastructure investment both weakened, while private investment plummeted.

Weaker credit demand and heavy rainfall in southern China could be behind the sharp fall in capital spending, Goldman economists including Lisheng Wang said in a note.

Statistical adjustment is another potential factor. Many economists believe authorities took measures to correct over-reporting of the data in late 2025. Such a change may have exaggerated the volatility of the figures recently, as the on-year contraction in steel and cement output narrowed in April, according to Goldman Sachs.

The consumer economy has meanwhile continued to struggle as households spent less on items as varied as autos and furniture.

Car sales plunged 15% in April from a year earlier, the worst contraction since mid-2022, when the country was under Covid restrictions. The government has scaled back subsidies for electric vehicle purchases this year, while the Iran oil shock hurt sales of gasoline-powered cars.

Purchases of home appliances and furniture — products that used to be buoyed by government subsidies — declined at a double-digit pace. Gold, silver and jewelry sales plummeted 21% — a huge reversal from earlier this year and 2025, when soaring prices for precious metals led to a speculative investment frenzy. (…)

The production of electronics, lifted by soaring global demand for AI chips, expanded 15.6% in April, the fastest pace in two years.

The auto industry also expanded briskly at 9.2%, as overseas EV sales took off. Meanwhile, commodities linked to real estate and construction — such as cement, glass and steel — recorded declines, while crude oil processing volume fell, which ING Bank economist Lynn Song attributed to the war’s impact.

Soaring chip prices may partly explain why factory output weakened even as exports surged.

While industrial production is reported after an adjustment made for inflation, sales abroad are calculated in nominal terms, making it hard to separate movements in prices versus volumes. Surging costs of chips and electronics accounted for about half of April’s 14% headline export growth, according to Nomura. (…)

“The concern is not just that activity missed, but that the weakness is broadening across the domestic side of the economy.” (…)

Chinese households net repaid the most loans in April since comparable data going back to 2010. (…)

The Winners and Losers of Oil’s New World Order

(…) The most consequential effects of the crisis, however, may not be the immediate price spikes around the world but the strategic policy shifts they prompt.

Just as nations dramatically rethought energy policy after the oil crises of the 1970s, a disruption of this scale will force governments around the world to rethink energy strategy.

Jason Bordoff makes a number of obvious points:

• “it is both true that America’s position has been strengthened by producing more oil and gas, and that the U.S. would still be less vulnerable to supply shocks if we used less oil through tighter fuel-economy standards, more electric vehicles, and better mass transit and rail.”
• The crisis will strengthen the case for Canada to export more crude through a pipeline to the West coast.
• “The crisis will reinforce, not upend, Beijing’s energy strategy. China spent years curbing the growth of oil use. (…) China’s 15th Five-Year Plan, released just after the war started, called for becoming an “energy powerhouse” through “strategic resilience” and “technological sovereignty” with non-fossil sources. The disruption of oil and gas supplies will only strengthen those ambitions.”
• India’s “longer-term response may require diversifying supply while accelerating oil displacement through solar, batteries, electric vehicles and rail.”
• In Japan, the crisis will “strengthen the case for restarting more nuclear reactors, accelerating offshore wind and solar and improving grid flexibility and storage. But Japan’s basic import vulnerability will remain, leading it to further prioritize energy efficiency, electrification of more of the economy, and maintaining larger buffers against disruption.”
• “Ukrainian attacks and constraints on investment and technology have accelerated the long-term decline of Russia’s oil industry, hampering its ability to structurally increase oil production capacity for the long-term in response to today’s higher prices. And Ukrainian attacks are intensifying, with at least 21 strikes on Russian assets and infrastructure in April. Russia’s refinery runs last month were the lowest since 2009.”
• “For many [Middle East] producers, a priority will be reducing exposure to chokepoints through new pipelines and export routes that bypass Hormuz, and reaffirming they are a trustworthy supplier.”
• “Tehran may emerge with new leverage. It has floated the idea of charging a toll to keep the strait open. Even if the war ends without such an arrangement, Iran has demonstrated that its ability to block Hormuz may be as powerful as the threat of a nuclear weapon.”
• “Much like the 2022 energy crisis following Russia’s invasion of Ukraine, this one will reinforce Europe’s imperative to electrify more of the economy with domestic power sources, including by reconsidering opposition to nuclear energy in some countries.”
• “For Africa’s poorest importers, every mini-grid, solar farm, battery and electric bus that displaces fuel imports reduces exposure to the next oil shock, though high borrowing costs, currency risk and weak grids remain major constraints. This situation will likely expand China’s existing investments in these industries in Africa and increase demand for Chinese products such as solar panels, inverters and batteries.”

He concludes with

The longer the Iran war continues, the more divided the energy world will become across existing geopolitical and geographic fault lines.

China will cast the conflict as proof that American hegemony has become a source of global instability rather than order, while heightened anxiety over oil and gas risk pushes more countries toward the clean-energy technologies Beijing controls.

Wealthy countries will respond by diversifying supply, strengthening buffers and accelerating alternatives, while poorer ones will often be forced to choose what is cheapest rather than most secure.

Importers will pay a premium for diversified supply, while exporters will pay for routes to market that are less vulnerable to disruption.

Here in the U.S., perhaps the biggest lesson is that even the world’s largest producers cannot insulate themselves from shocks in a global market.

I will dare to be more blunt than professor Bordoff:

The crisis the US created will backfire in several ways:

• Oil prices will likely be much higher for much longer, raising costs across the world for consumers and companies.
• Every oil importing country will seek to hastily reduce consumption and diversify sources of supply. As the world’s largest oil producer, the US is vulnerable to declining oil consumption.
• Canada will accelerate oil exports to Asia, curbing its discounted landlocked oil exports to the US. American refiners will lose the “Canadian Discount” and increase their dependence on Venezuelan and Mexican heavy crude.
• While most of the world will speed up electrification with lower cost, green renewable energy, the US will remain hooked on more expensive fossil fuels, raising relative costs for American consumers and companies.
• Europeans, having replaced Russian gas with US LNG, have recently realized a new vulnerability after the Trump administration weaponized America’s enhanced dominance by threatening to revoke Europe‘s “favourable access” to US LNG if the European Parliament attempted to “amend, stall, or refuse to ratify the trade agreement”. The whole world certainly took note that the US can no longer be classified as a truly reliable supplier.
• The US attack on Iran, Iran’s closing of the Strait of Hormuz and the subsequent US blockade are a big wake up call for Gulf producers.
• The US totally disregarded the GCCs’ views and warnings against the attack and went with Israel’s analysis.
• GCCs discovered an unsuspected military vulnerability in spite of a perceived US security umbrella.
• The US has greatly benefitted from the war, not only from higher prices, but also from increased exports to GCC’s pre-war clients. Energy Secretary Chris Wright said on CNBC last week that the US’s economic future depends on selling its energy abroad and that this was a top item on the Trump agenda. Asian refiners, short on crude input, have also seen US refiners supply their European and Australasian clients.
• Transit through Hormuz and/or the Red Sea’s Bab-el-Mandeb Strait will remain vulnerable after the war.
• Already split on the 2020 Abraham Accords, the GCC was further weakened by the UAE’s decision to leave OPEC.
• As a result, oil supplies and prices after the war are highly uncertain. How will Middle East producers, particularly Saudi Arabia, deal with shipping uncertainty and costs, market share dislocations and expectations of faster growth in renewables across the world? How will producers balance prices vs production against declining demand from now on?
• What will happen with the petrodollar and US interest rates? The petrodollar system goes back to 1974 when Saudi Arabia agreed to price its oil in dollars and reinvest those funds in US Treasuries in exchange for American security guarantees, now under reconsideration. Trump repeatedly saying that “You know, we don’t use the strait…We don’t need it. Europe needs it. Korea, Japan, China, a lot of other people” directly weakens the case for a petrodollar. Liquidity issues and US dollar currency pegs prevent a large scale decline in OPEC’s USD needs but many see the war as “a catalyst for the erosion in petrodollar dominance, and the beginnings of the petroyuan”. Longer term, this will have an immense effect of the United States’ monetary policies, even more so given the US ever rising indebtedness.

 

Taiwan is now a bargaining chip, literally…

Trump to Decide Soon on Taiwan Arms Sale, Noncommittal to Xi

(…) “On Taiwan he feels very strongly, I made no commitment either way,” Trump told reporters aboard Air Force One on Friday. The US president said he would ultimately “make a determination over the next fairly short period” about the weapons after speaking to the person “that’s running Taiwan,” without specifying who he means.

“I may do it. I may not do it,” Trump said separately in a Fox News interview.

“I’m holding that in abeyance, and it depends on China, it depends,” Trump added, speaking about the decision. “It’s a very good negotiating chip for us, frankly. It’s a lot of weapons.” (…)

Trump also said Xi asked him directly if the US would defend Taiwan in a conflict.

“There’s only one person that knows that, you know, it is me, I’m the only person,” Trump said.

“I said, I don’t talk about that,” he continued.

Trump’s extended conversation with Xi over Taiwan policy was itself remarkable, and represented a possible break that could reverberate both internationally and domestically. The US has a long-standing policy of strategic ambiguity over whether it would come to the aid of Taiwan if it is attacked by China, with Washington reserving the right to use force but never explicitly saying whether it would actually intervene. But negotiating any arms transfers with Xi would flout diplomatic policy.

US-Taiwan relations have been dictated since 1982 by President Ronald Reagan’s “six assurances,” which take a deliberately vague stance toward the island’s sovereignty but explicitly state that the US would not consult with China on arms sales to Taiwan and would not revise the Taiwan Relations Act, which requires Washington to provide the island with defensive arms.

Trump was asked explicitly whether he risked undermining the assurances, a bipartisan bedrock of US foreign policy, by a reporter aboard Air Force One. He responded by saying 1982 was “a long way” away, but reiterated he didn’t make commitments to Xi. At the same time, he sowed doubt about whether he would follow through with the arms sale.

“I think the last thing we need right now is a war that’s 9,500 miles away,” Trump said.

Still, he told Fox News that “nothing’s changed” with regard to the US stance on Taiwan. (…)

“US policy on the issue of Taiwan is unchanged as of today, and as of the meeting that we had here today,” Rubio told NBC News on Thursday, referring to Washington’s long—held policy of supporting the island without recognizing its sovereignty. (…)

While Trump and Xi’s closed-door meeting on Thursday was still underway, Beijing released a readout of the Chinese president’s remarks that underscored how much the self-ruling island continues to strain US-China relations.

“The Taiwan issue is the most important issue in China-US relations,” Xi said, according to the official Xinhua News Agency. “If mishandled, the two nations will experience collision or even clashes, pushing the entire China-US relationship into a highly dangerous situation.” (…)

Any Trump effort to quash the planned $14 billion US arms sale to Taipei would likely unleash a bipartisan backlash in Washington. If the White House pushes the deal through, Trump will face Beijing’s wrath. (…)

Yesterday:

Lai Says Taiwan Won’t Be Sacrificed as Trump Weighs Arms Deal

(…) “Taiwan is a core global interest, and any act that undermines peace and stability across the Taiwan Strait is not only a blatant provocation against international rules and order but will also have a significant impact on Indo-Pacific security, global supply chains and the world economy,” Lai said in a Facebook post.

Taiwan also played a key “security and defense” role in the region, Lai added in his post on Sunday, meaning that US weapons sales were necessary to counter “China’s unwavering commitment to the use of force to annex Taiwan.” Taiwan is part of what US military strategists gaming out how to fight China call the “first island chain,” which runs from Japan to the Philippines.

Lai’s comments on supply chains refer to what some have called “the silicon shield” — the notion that defending the democratic island that makes some 90% of the world’s most advanced chips from China is vital to the world economy, especially during the artificial intelligence era. (…)

Trump’s comment about the distance from the US to Taiwan was the most worrying, and could be viewed as Washington not sending troops if Beijing invades, even if Trump hadn’t made a final decision, said the official, who asked not to be identified discussing the sensitive issue.

Taipei was also concerned that Trump might use a potential $14 billion weapons package as a bargaining chip with China to get it to ramp up purchases from the US, the official said. It was also concerned that the size of the arms deal could be reduced to get China to buy more US goods, the official added.

Trump told reporters after the summit that he spoke with Xi about Taiwan and weapons sales, “in great detail actually.” “I’ll be making decisions,” he said, apparently about weapons sales for Taiwan. (…)

Goldman Sachs Group Inc. economists Andrew Tilton and Hui Shan wrote in a note that their “impression is that Xi is implicitly offering Trump a ‘grand bargain’ of sorts: if the US reduces rhetorical and military support for Taiwan, and refrains from new sanctions, China will make big/bigger headline purchases and be helpful on other US priorities.” One of those issues, they wrote, was possibly working with Iran to open the Strait of Hormuz. (…)

The US president also said he doesn’t want Taiwan to “go independent,” and called on both Taipei and Beijing to “cool down.” (…)

In his comments on Facebook, Lai said “there is no issue of ‘Taiwan independence’” and repeated his government’s position that the island is already a sovereign democratic state. (…)

Chinese Foreign Ministry spokesman Guo Jiakun said Lai’s comments showed “his separatist stance and intent to advance Taiwan independence.”

“By colluding with external forces to seek independence and attempting to make the Taiwan question an international issue, the Lai Ching-te authorities are destroyers of the status quo and biggest destroyers of peace and stability across the strait,” Guo added at the regular press briefing in Beijing on Monday. (…)

The World Is Burning Through Its Oil Safety Net Global oil inventories have fallen at a record pace during the Iran war

(…) In a report titled “The illusion of plenty,” JPMorgan Chase estimated that if the strait remains blocked, stockpiles in a group of wealthy nations could plunge to “operational stress levels” early next month and to system-straining “operational floor level” by September. The bank said it doesn’t expect inventories to actually reach those levels because history suggests demand would be curtailed first.

The implications of an oil supply shortage are vast. Prices at the gas pump are already touching their highest levels in years in the U.S. and could shoot higher when stocks run low. Airlines are reorganizing flights to adapt to potential shortages of jet fuel. Central bank decisions over whether to raise interest rates will depend in large part on whether oil markets remain well supplied.

The chief executive of Saudi Aramco, Saudi Arabia’s state-owned oil company, said this week that global stockpiles for refined products such as gasoline and jet fuel could reach “critically low levels” ahead of the summer driving and travel season. (…)

But releasing stocks isn’t the same as replacing supply. It shifts the shortage problem from today into the future, when governments and companies eventually will have to rebuild depleted reserves. The IEA estimates that replenishing the cumulative deficit, including strategic reserves, would require roughly an extra one million barrels a day of supply for three years.

As a result of the inventory depletion, U.S. stocks of diesel are likely to fall below 100 million barrels, the lowest level since 2003, by the end of May, according to consulting firm Eurasia Group. Even sharper declines are hitting Asia, the region most reliant on Persian Gulf exports before the war.

Based on current supply trends and domestic inventories, countries like India, Thailand and Taiwan are rapidly approaching critical scarcity levels of refined products such as naphtha, fuel oil and diesel, according to estimates by Goldman Sachs. (…)

Trump demonstrated his deep understanding of the situation to Fox News: “They need the Strait more than we need it open, we don’t, we don’t need it at all,”

Also, Hormuz is much more than oil.

• Hormuz Oil Flows Creep Higher as More Supertankers Exit

(…) Four ships each hauling 2 million barrels of mostly-Iraqi crude have exited since May 10 — a rate close to 2 million barrels a day — according to vessel tracking data compiled by Bloomberg. Still, prior to the war, there were about 20 or so tankers of various sizes crossing the waterway daily. (…)

Of the four supertankers that departed with their signals on, three loaded crude oil in Iraq. The other is carrying cargoes from the United Arab Emirates and Kuwait, the vessel tracking data show.

Iran said on Thursday that it is now allowing Chinese ships to pass the Strait of Hormuz following discussions with the country’s foreign ministry. (…)

From Windward:

Taken together, the developments indicate that significant portions of the Strait are increasingly functioning as controlled maritime operating zones shaped by covert staging, surveillance, selective transit management, and constrained export activity. (…)

Windward assesses that Iran is increasingly holding export tonnage in reserve while attempting to restore loading operations and manage outbound crude flows under blockade pressure. (…)

Windward assesses that northern Hormuz, eastern Hormuz, and Chabahar are increasingly functioning as protected holding and staging zones buffering Iranian export capacity under blockade conditions. (…)

Additional dark vessel transits were also observed operating inbound and outbound without AIS transmission.

Persistent sanctions evasion and staging activity also continued throughout the northern corridor. (…)

Windward assesses that widespread AIS suppression, EMCON behavior, and dark staging activity are increasingly reducing maritime transparency across Hormuz and complicating the distinction between commercial shipping, sanctions-evasion operations, and state-supported maritime activity.

Regional reporting during the period reinforced indications that Iran is increasingly shifting from attempted Strait closure toward controlled access management.

According to open-source reporting on May 12, Iraq and Pakistan reached separate arrangements with Iran to secure passage for crude oil and LNG cargoes through Hormuz under Iranian oversight. Iraqi officials reportedly coordinated transit approvals directly with Tehran for VLCC movements carrying Basrah crude, while Pakistan secured separate arrangements covering Qatari LNG cargoes.

Windward assesses that the emergence of bilateral transit-clearance arrangements reinforces broader indications that Iran is increasingly attempting to formalize operational influence over vessel movement through Hormuz while preserving selective energy flows under wartime conditions. (…)

Windward assesses that the Strait of Hormuz is increasingly operating less as a conventional commercial shipping corridor and more as a controlled maritime operating environment shaped by surveillance, staging, selective transit management, and constrained export logistics.

• UAE Tried in Vain to Get Saudis to Coordinate on Iran Response

The United Arab Emirates tried to persuade neighboring states including Saudi Arabia and Qatar to take part in a coordinated military response to Iran’s strikes and was left frustrated when they refused, according to people familiar with the matter.

UAE President Sheikh Mohammed bin Zayed held a series of calls with fellow leaders, including Saudi Crown Prince Mohammed bin Salman, shortly after the US and Israel began bombing Iran on Feb. 28, said the people, who asked not to be identified discussing private conversations.

MBZ, as the UAE president is known, was convinced of the need to retaliate as a group to deter Iran, the people said, as the Islamic Republic responded to US-Israeli attacks by firing hundreds of drones and missiles at Gulf countries. Tehran targeted ports and airports as well as residential towers and hotels across the region. Iran also all but closed the vital Strait of Hormuz, forcing Gulf states to curb oil and natural gas production and denting their finances.

While MBZ quickly opted to work with US President Donald Trump’s administration and the Israelis, his Gulf Arab counterparts told him this wasn’t their war, according to one person familiar with Abu Dhabi’s thinking. An already fractious relationship between the UAE and Saudi Arabia worsened as a result.

During the calls, the UAE President reminded his counterparts that the Gulf Cooperation Council, a six-country body, was founded in 1981 specifically because of threats posed to them by Iran’s Islamic revolution two years previously, the person said. (…)

The UAE, which established diplomatic relations with Israel as part of the US-brokered Abraham Accords in 2020, became the country most targeted by Iran during the war, which has been in a state of fragile ceasefire since April 8. (…)

Saudi Arabia also opted to strike Iran in March, according to other people familiar with the matter, who asked not to be named given the sensitivity of the matter. Riyadh then pivoted to getting Pakistan to mediate between the US and Iran, they said.

The UAE was frustrated it was not sufficiently consulted about the Pakistan-led diplomatic effort, one person said. Abu Dhabi refused to extend a $3 billion loan to Islamabad in early April, and Saudi Arabia subsequently stepped in to help the Asian nation repay some of the money.

Qatar considered retaliating after Iran hit Ras Laffan, the world’s largest LNG plant, in mid-March, according to a Gulf official. Doha ultimately decided against the move, favoring playing a role in de-escalation, the official said.

Bahrain and Kuwait, which generally act in lockstep with Saudi Arabia, opted to stay out of the conflict, according to a separate person familiar with the matter. Oman was never realistically likely to join given its closer ties to Iran, people with knowledge of the situation said.

Trump’s administration was aware of the UAE-led Gulf deliberations and wanted the Saudis and Qataris to join a coordinated military response, one person familiar with the matter said.

All three of those Gulf nations tried to dissuade Trump from starting the war, fearing that Iran would lash out against them and the US bases they host. In the previous few years, they worked to improve ties with Iran, hoping that would stabilize the region and boost investment in their economies.

  In the FT, not seen anywhere else:

Saudi Arabia floats Middle Eastern non-aggression pact with Iran

Saudi Arabia has discussed the idea of a non-aggression pact between Middle East states and Iran as part of talks with allies on how to manage regional tensions once the US-Israeli war with the Islamic republic ends, diplomats said.

Riyadh is eyeing as a potential model the 1970s Helsinki Process that eased tensions in Europe during the cold war, said two western diplomats, as the region anticipates a postwar Iran that is weakened but still poses a threat to its neighbours. They added that the non-aggression pact was among various ideas being considered.

Gulf states in particular have been concerned since the US and Israel launched the war against Iran that they would be left with a wounded, more hawkish Islamic regime on their doorstep once the conflict ends and the large American military presence in the region is scaled back. (…)

But the months of war have created a new sense of urgency among Arab and Muslim states to rethink their alliances and the region’s security apparatus.

Many European capitals, and the EU institutions, have swung behind the Saudi idea and have urged other Gulf countries to support it, the diplomats said. They view it as the best way to avoid future conflict and provide Tehran with guarantees that it also would not be attacked.

The US and Iran have been holding back-channel talks over a deal to end the war and reopen the Strait of Hormuz. But the negotiations have focused on the republic’s nuclear programme, not its missile and drone arsenal or support for regional proxies, which are key concerns of Arab states.

An Arab diplomat said that a non-aggression pact modelled along the lines of the Helsinki process would be welcomed by most Arab and Muslim states, as well as by Iran, which has long sought to project to the US and other western powers that the region should be left to manage its own affairs.

“It all depends who is in it — in the current climate you are not going to be able to get Iran and Israel . . . without Israel it could be counter-productive because after Iran, they are seen as the biggest source of conflict,” the diplomat said.

“But Iran is not going anywhere and this is why the Saudis are pushing it.” (…)

Some Arab and Muslim states have also become increasingly concerned about Israel’s military conduct in the wake of Hamas’s October 7, 2023 attack. Many do not have formal relations with Israel.

They blame Israeli Prime Minister Benjamin Netanyahu for dragging US President Donald Trump into a war they lobbied against. Israel is increasingly seen by many Arab and Muslim states as a belligerent, destabilising force as it continues to launch attacks against Hizbollah in Lebanon and Hamas in Gaza, while also occupying parts of southern Syria.

There are also divisions among Arab and Muslim states — particularly between Saudi Arabia and the United Arab Emirates, the Gulf’s two most influential states — over conflicting visions for the region and economic competition.

The UAE has been the most hawkish Gulf state towards Iran during the war, and has criticised Arab institutions for not being more robust in their response to the Iranian aggression. It has made clear that in the wake of the war, it intends to double down on its relations with Israel.

Two of the diplomats questioned whether the UAE would be willing to join any arrangement. Saudi Arabia and other Gulf states, meanwhile, have been more supportive of Pakistan-led mediation efforts to broker a deal between the US and Iran to end the war.

The kingdom is part of a burgeoning alignment with Pakistan — with which it signed a mutual defence pact in September — Turkey and Egypt. Diplomats say that while they do not have a formal alliance, the states are likely to deepen defence, foreign policy and economic co-operation in the wake of the war.

Pakistan’s defence minister Khawaja Asif said on Monday that Islamabad had developed a proposal for Qatar and Turkey to join the Saudi-Pakistani defence pact to build an “economic and defence alliance . . . that will minimise dependence outside the region”.

The idea of expanding the defence pact was first mooted before the war, a Pakistani official said.

Finally, a way out. That would be a big, big deal!

Japan Producer Prices Jump by Most Since 2014, Backing BOJ Hike

The measure of input prices for Japanese firms rose 2.3% from a month earlier and March’s increase was revised higher, the Bank of Japan reported Friday. That was a full point above the highest estimate in a Bloomberg survey of economists and marked the biggest jump since April 2014, when the sales tax was raised for the first time in nearly two decades.

Outside of that instance, it was the largest increase since 1980.

The gain was led by higher prices of oil and naphtha — a key petroleum product used to make plastics and rubbers — according to the bank. From a year earlier, producer prices advanced 4.9%, the biggest increase in three years and also exceeding all projections. (…)

US Retail Sales Rise for Third Month Despite Gas Price Surge

The value of retail purchases increased 0.5% last month after a revised 1.6% gain in March, Commerce Department data showed Thursday. Because the figures aren’t adjusted for inflation, an increase could reflect higher prices rather than more sales volumes. (…)

The report suggests higher-than-usual tax refunds and a stock-market rally helped provide a financial cushion against mounting inflationary pressures. However, it’s unclear how long that will sustain robust demand. Inflation-adjusted wages are declining once again and Americans are saving less.

“The powerful equity market rally is supporting spending on the upper leg of the K-shaped expansion, more than offsetting any pullback from those on the lower leg who are struggling with higher fuel, transportation, and food costs,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note.

So-called control-group sales — which feed into the government’s calculation of goods spending for quarterly gross domestic product — increased a larger-than-expected 0.5%. The measure excludes food services, auto dealers, building materials stores and gasoline stations. Outside of receipts at gas stations, sales rose 0.3%, the least in three months. (…)

The retail sales report showed spending at restaurants and bars, the only service-sector category in the retail report, rose 0.6%. Despite household budgets coming under pressure, the figure indicates solid demand for dining out.

Using my proxy for retail inflation (0.35 x CPI Durables + 0.65 x CPI Nondurables), retail inflation jumped 1.1% MoM in April after +2.1% in March.

That would mean real sales down 0.5% MoM in March and down 0.6% in April.

On a YoY basis, retail sales grew +4.9% in April after +4.2% in March but “retail inflation” was +5.3% in April and +4.0% in March.

Core retail sales in April increased by +6.4% YoY after +6.1% in March.

BTW:

Import prices ex-petroleum jumped 8.7% annualized in April to +2.9% YoY (vs +0.9% and +1.0% in 2024 and 2025 respectively). They are up 2.3% since December or +7.0% annualized. FYI, import prices do not include tariffs.

Bloomberg:

Yields on US Treasuries have risen every day this week, pushing the 10-year to 4.54%, the highest in about a year. Sovereign bonds, as measured by Bloomberg indexes, have handed investors losses for the year in the US, the UK, the euro area and Japan.

Everywhere, it’s a story of price pressures fed by the war, as shown in this week’s stronger-than-expected US inflation readings.

Traders increasingly are betting on Fed interest rate hikes to keep prices in check.

AI Buildout Drives 76% Power Bill Jump on Largest US Grid

The total cost of wholesale power on the 13-state grid managed by PJM Interconnection LLC averaged $136.53 per megawatt-hour in the first three months of the year, according to a report from Monitoring Analytics, the grid’s independent market monitor. That compares to $77.78 per megawatt-hour during the same period in 2025. (…)

The report said data center load included in the last two PJM capacity auctions increased customers’ bills by $13.8 billion. “The price impacts will be even larger in the near term unless the issues associated with data center load are addressed in a timely manner.”

PJM said in a statement that the rising prices were an accurate indication of supply and demand conditions in the wholesale market and that prices were functioning correctly. The grid operator said it was taking further measures to support consumers, including by extending capacity market price caps.

PJM serves 67 million people across eastern states from New Jersey to Illinois, where a large concentration of data centers in the US are located. The company has found itself at the center of a storm of criticism from politicians, consumers and utilities for rising prices.

ComEd, a unit of Exelon Corp and the largest energy utility in Illinois, on Thursday blamed surging supply costs on the PJM grid for rising customer bills. (…)

The company said the average residential customer bill would increase between $2 to $3 per month, as a result of a PJM capacity auction held last year.

Average demand in the first three months of 2026 increased by 3.1% in the first quarter compared to the same period last year, according to the data from Monitoring Analytics. Generation from natural gas units, the primary energy source in PJM, increased 4.2%, while generation from solar units increased 15%.

The Blockbuster Cerebras IPO Is a Huge Bet on Nvidia Fatigue Startup known for its big chips now has a giant valuation to live up to

The maker of monster-size chips just completed a monster-size IPO. Cerebras saw its shares soar 68% in its first day of trading on Thursday. And that was after pricing the offering at $185 a share, 48% above what the company originally thought it would get as recently as last week.

Cerebras now has a market cap of around $67 billion. That might look tame in an uber-hot market for chip stocks. But Cerebras is a small, unprofitable company that is also burning cash as it builds up a cloud-computing service using its own chips. Growing into its ambitious valuation against strong competitors like Nvidia will be a challenge and likely won’t go smoothly. (…)

The stock’s closing price on Thursday values the company around 134 times its revenue for the past four quarters. That is more than five times Nvidia’s multiple on the same metric.

If one assumed Cerebras could grow its revenue by 150% this year—double the growth rate from 2025—the company trades about 54 times forward sales. The most expensive stock on the PHLX Semiconductor Index trades around 41 times forward sales. Futurum analyst Shay Boloor says Cerebras could become one of the most credible challengers to Nvidia’s dominance, but added that the market “is already pricing in years of flawless growth” at the company’s current valuation.

That doesn’t tend to happen in the cyclical chip business. And Cerebras also needs to show it can diversify its business, as 86% of last year’s revenue came from two government-backed outfits in the United Arab Emirates.

Recent deals with OpenAI and Amazon are helpful, but will take time to fully kick in. Cerebras will recognize only about 15% of the $24.6 billion on its current revenue backlog over the next two years. And the chip-supply deal for Amazon’s AWS service won’t go into “full production” until next year, Feldman said. (…)