Note: some email subscribers did not get the daily emails last week due to a MailChimp/Wordpress bug. You might have missed:
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19 August 2026: Normalizing valuations?
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20 August 2026: Bond vigilantes, Bessent, FOMC, Warsh, Trump, Kennedy Jr.
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21 August 2026: Bessent vs vigilantes.
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WARS PEOPLE PLAY!
USA vs CANADA
Recall that these negotiations were about new 50% tariffs threatened by Trump in July, to retaliate because Canada stood up and retaliated to his earlier tariffs, initially because of phony fentanyl trafficking. Look where we are now.
Then the trade deficit. As the WSJ puts it
Mr. Trump’s complaint about the U.S. trade deficit with Canada is particularly ironic since the latter owes entirely to imports of heavy crude oil that is especially well-suited for U.S. refineries. Exclude Canadian oil, and the U.S. would have a trade surplus. But U.S. refineries would also operate at lower capacity.
Last Tuesday, Trump delayed his initial deadline, posting on Truth Social that the two sides had reached “a DEAL” and needed three days to finalize the documents.
The subsequent breakdown spotlighted tensions in the president’s strategy, including questions over the durability of any deal reached with the U.S. administration.
After all, the U.S. and Canada, along with Mexico, already have a trade deal: the United States-Mexico-Canada Agreement (USMCA) of 2020, which Trump hailed at the time as “the largest, fairest, most balanced, and modern trade agreement ever achieved.”
But this year, the president threatened to quit the deal and demanded sweeping changes to it, aimed at promoting more U.S. manufacturing. He also imposed tariffs on Canadian goods starting last year, a breach of the accord.
On Saturday, speaking in Ottawa, Carney alluded to the difficulty of negotiating with a mercurial president.
“We’ve recognized from the start that America has changed,” Carney said. “We recognize that sometimes, its signature is written in pencil.” (David Lynch)
The subdued, composed and prudent former central banker Mark Carney called it quit and told Canadians Saturday morning “You are at war when you get attacked. We got attacked.”
Carney blamed meaningful “last-minute changes” that were unfair and called into question the reliability of any deal.
What happened?
But as Greer haggled with the Canadians this week, a split emerged over the U.S. trade representative’s willingness to reduce an existing 50 percent tariff on aluminum derivatives to 25 percent in return for Canadian concessions.
At a White House meeting, White House trade adviser Peter Navarro and Commerce Secretary Howard Lutnick, whose department administers the national security tariffs, clashed with Greer, representing industry views that the higher aluminum tariffs were needed to encourage domestic manufacturing.
“Navarro and Lutnick were both yelling at Greer saying: ‘What are you doing? This is stupid. You know, we’re not giving these things away,’” said one industry representative, who spoke on the condition of anonymity to describe the confidential talks.
Late in the talks, the U.S. sought to exclude from tariff reductions heavy trucks produced in Ontario, such as the Ford F-350 and F-450, and the GM Silverado. Over time, that would have made it “more uneconomic” for the automakers to keep making the vehicles in Canada, Carney said.
The administration also sought to restrict Canada’s right to sign trade deals with other countries, a key part of Carney’s strategy to reduce dependence on its increasingly unreliable southern neighbor. (…)
“Demanding that your closest trading partner mirror your trade policy with third countries is akin to asking them to surrender agency over foreign policy. This episode shows that doesn’t work, no matter the disproportionate market leverage of the USA.” (…)
On Saturday, Carney said Canada will retaliate on Sept. 8 for the new tariffs with its own trade measures. By delaying his response, he is leaving time for cooler heads to prevail, analysts said.
“Then the parties come back to the table. North America is too integrated for it to unravel on the basis of a deal that was put together over 14 days,” said Dan Ujczo, a trade lawyer in Columbus, Ohio. (…) (WaPo)
Carney, Saturday: “Last spring, I warned that America is trying to break us so they can own us. And I promise that that will never ever happen. We are keeping that promise.” Polls say 75% of Canadians support him.
Funnily (?), “As Carney prepared to walk away — a rare example of a foreign leader telling the president “enough” — Trump was retreating on another trade front. On Friday, after insisting for more than a year that tariffs do not affect consumer prices, he lifted tariffs on beef imports, saying the move would lead to lower grocery prices.” (David Lynch)
- Trump Has a Beef With Tariffs He lifts border taxes on up to 300,000 metric tons of imports—through the election.
One of the (many) problems with tariffs is that they lead to countless and arbitrary exceptions for political purposes. President Trump’s latest came Friday as he announced plans to lift tariffs on beef imports for 90 days. You may notice that this covers the three months through the November midterm elections. (…)
It’s nice that Mr. Trump is giving American consumers this reprieve, at least through the election. He knows he and Republicans are being blamed for higher prices. The break on imported beef is supposed to show he’s doing something about it, even if he is resorting to price controls on imports in the process. (…)
But he still won’t admit that these concessions to political reality are a tacit admission that his tariffs have failed economically and politically. The public is unhappy about higher prices and voters understandably think Mr. Trump’s ballyhooed tariffs are partly to blame. (…)
Despite his claims that tariffs are a miracle economic cure, Mr. Trump has allowed exceptions for imported consumer electronics, smartphones, coffee, bananas, copper, chemicals, flat-panel TVs, memory chips, fertilizer, and hundreds of other products.
Have a good lobbyist, will travel in Washington. Mr. Trump may treasure the political leverage all of this provides him, but he and his party may pay a price this November for raising prices for millions of consumers.
Americans are no dumb and dumber. “One reason for Mr. Trump’s frigid approval rating is that voters believe Mr. Trump is waging blunderbuss wars without a strategy, and on trade they’re right.” (WSJ)
Only on trade?
What was, is, the strategy on Ukraine/Russia? Gaza? Iran? China, AI, the budget deficit, national debt, housing. etc.?
Wait! Here’s the new strategy on Iran, from the US Treasury Secretary, already at war with the bond vigilantes:
Scott Bessent: an economic D-Day is coming for Iran
Bessent in Sunday’s FT:
(…) At dawn begins an economic D-Day — the single greatest financial offensive ever marshalled against an adversary. (…)
Too often, though, we find ourselves alone in our resolve to thwart it. (…) The regime’s final refuge now lies in the self-deception of fearful nations that still believe accommodating aggression can secure a durable peace. (…)
In short, these countries calculate appeasement of the regime to be the safer course.
But they would do well to consider the consequences of sustaining it. (…) Pascal’s eponymous wager now applies to Iran’s lifelines. Nations that, in courting reprieve from Tehran, continue to replenish the very regime from which they seek protection — and now exceed the limits of America’s tolerance. (…)
Not another generation should be condemned to the menace of fanatics who devote themselves to “death to America” and fulfilling the regime’s nuclear ambitions.
And total financial isolation can obviate the need for American force while enlarging the sphere of freedom for our allies. Those who sever Iran’s remaining financial and commercial connectivity will reinvigorate their own. They will deepen their access to global capital, reinforce confidence in their markets and attain the standing they seek in the world economy.
The alternative for those who tether themselves to Tehran is the foreclosure of any path to lasting prosperity. (…)
And any nation that serves as a financial artery of a withering regime should expect to share in its isolation. To become a sanctuary for terror is to become, in the eyes of the United States, a global pariah.
The Islamic republic has subsisted by dressing extortion as security guarantees. It has drawn strength from a calculus that regards Iranian retaliation as certain and American enforcement as negotiable. Under President Trump, that era is over.
And those who fear the danger of defying Tehran ought not to discount the cost of testing Washington. The president has created the conditions to leverage every agency, every authority and action many assumed we would never summon.
Any remaining tie to Tehran will hasten the economic ostracism of countries and entities, whether that tie be purposefully constructed or wilfully ignored.
And if, as the regime’s grasp on power crumbles alongside its economy, Iran resorts to military action against US forces or its Gulf neighbours, make no mistake: President Trump will respond swiftly and decisively.
The world should understand that our objective is to sever every economic lifeline that sustains the tyrannical regime until Tehran stands alone. Pascal considered salvation to be a choice. As a great wave of American resolve comes ashore, are Iran’s enablers willing to wager their future against it?
Sounds more like dire warnings to the whole world:
And those who fear the danger of defying Tehran ought not to discount the cost of testing Washington. The president has created the conditions to leverage every agency, every authority and action many assumed we would never summon.
Any remaining tie to Tehran will hasten the economic ostracism of countries and entities, whether that tie be purposefully constructed or wilfully ignored.
Questions:
- “our allies”?
- Has this been discussed with US “allies”, whoever they may be?
- Congress?
- Are GCCs on board?
- China, Russia, North Korea, Turkey?
- How long will this take, if it works?
- Plan B, C, D?
Also on Sunday:
Mohsen Rezaei, Iran’s top security official, said in a post on X on Sunday: “If the economic war continues, not a single drop of oil will be exported, neither through the Strait of Hormuz nor from anywhere in the Persian Gulf. Iran will regard any country’s participation in or support for America’s economic war against the Iranian people as an act of war.”
Traffic through the waterway has fallen to lows only seen when strikes were at their heaviest earlier in the conflict. Windward, the maritime analytics company, said that there were only about 16 transits per day in the past week, down from more than 130 before the conflict broke out. (FT)
From Windward: Of the very few outbound crossings of the past 7 days, two thirds are destined to China, 10% to Russia.
Inflation, deflation:
Nvidia Customers Notified About AI-Related Price Hikes Above 15%
The price hikes will go into effect on systems shipped early next year and will impact systems including those with the flagship Vera Rubin and Grace Blackwell chips, according to people familiar with the process, who asked to not to be identified commenting on communications that haven’t yet been made public. The increases will depend on the generation of Nvidia chips and the memory configurations, they said. (…)
Nvidia’s accelerator processors are the heart of computers that create and run AI software. Their effectiveness depends on how much dynamic random access memory, or DRAM, they are paired with. The two Korean companies and Micron account for most of the world’s production of that type of chip. While they’ve been increasing output, they still haven’t caught up with surging demand. That’s driven the price of the commodity-like components up massively and given their manufacturers unprecedented influence in technology. (…)
How Nvidia’s customers react to this latest move and whether it will create an opening for its competitors will likely depend on whether they’re able to secure enough memory themselves. Major customers like Amazon, Microsoft, Google and Meta are all pursuing their own in-house chip programs but are still dependent on purchases from Nvidia for their data center build-outs. Their ability to push forward with greater independence will also depend on their access to supply from Samsung, SK Hynix and Micron.
The price increases are also likely to add complexity to the industry’s massive AI data center build-out ambitions. Project delays, labor shortages, tightening capital markets and community resistance to developments have already complicated many plans.
The Information: “The changes could increase the cost of a 1 gigawatt data center by at least $5 billion, based on the current price of chip systems for such a facility.”
OpenAI said on Friday it is cutting the prices of its frontier GPT-5.6 Sol model for developers by more than 20% for the next three months, as the ChatGPT maker faces growing competition from Anthropic and Chinese AI models.
The price cuts are effective on OpenAI’s application programming interface, or API, and are rolling out across eligible plans for credits on its agentic AI product ChatGPT Work and its coding tool Codex, OpenAI said.
Pricing for Pro, Plus and Business subscriptions remains unchanged, the company said.
GPT-5.6 Sol is now priced at $4 per 1 million input tokens and $20 per 1 million output tokens for standard short-context use, according to OpenAI’s pricing table. That compares with previous prices of $5 and $30, respectively.
OpenAI late last month slashed prices of its smaller models. It cut prices for the mid-tier GPT-5.6 Terra model by 20% and for the lower-cost Luna model by 80%.
Anthropic lists its frontier Claude Fable 5 model at $10 per 1 million input tokens and $50 per 1 million output tokens, while its Claude Opus 5 model is listed at $5 per 1 million input tokens and $25 per 1 million output tokens.
FYI:
Tech Insider Buying: moving on, despite the global equity bull market, US tech stocks peaked back in early June and have been consolidating ever since. One sign that they might be gearing up to rejoin the global bull market though is the strong pace of corporate insider buying. (Callum Thomas)
Source: @jasongoepfert
US Flash PMI
USA: Business growth hits 52-month high in August
The headline flash S&P Global US PMI Composite Output Index rose from 54.5 in July to 56.0 in August, registering the fastest growth since April 2022. The survey data signal a marked acceleration of business growth so far in the third quarter, though the drivers of growth have diverged. While strong manufacturing growth throughout the second quarter has faded over the summer, such that goods production showed the smallest monthly rise for 13 months in August, service sector activity has revived from the sluggish pace reported in the second quarter to reach the fastest since December 2024.
This changing sector pattern of growth is less evident for order books, with both manufacturing and services again registering robust increases in demand in August. Nonetheless, while the growth trend for orders has slowed in manufacturing, it has improved in services.
This divergence reflects some cases of manufacturing production being constrained by raw material shortages, linked to supply chain delays, as well as reports of less precautionary inventory accumulation. Safety stock building related to concerns over price rises and supply shortages due to the war in the Middle East had been a key driver of factory growth in the early months of the conflict, but now appears to be fading.
Input buying by manufacturers also rose only slightly in August, registering the smallest increase so far this year. However, supply chain delays remain widespread, with supplier delivery times lengthening in August to one of the greatest extents seen over the past four years, blamed on shipping delays, tariffs, and diminished stock availability at suppliers.
Supply delays caused backlogs of work to accumulate again in manufacturing, with outstanding orders having risen since the start of the war at rates not seen since 2022. However, strong demand combined with supply constraints has also led to rising backlogs in the service sector, where outstanding orders rose in August at the sharpest rate since May 2022.
Business output expectations improved for a third successive month in August, recovering to their highest since November of last year, reflecting a combination of order book backlogs, rising customer enquiries, expansion plans, and an easing of concerns over the economic impacts of tariffs and the war in the Middle East. Confidence improved in both manufacturing and services during the month.
Having shown little net change over the prior eight months, employment rose sharply in August. The increase in payrolls signalled was the largest since January 2025 and second largest recorded over the past four years. An especially marked rise in staffing was reported in the service sector, the largest rise since the start of last year, but factory jobs growth also picked up to the highest since May. Job gains reflected improved business confidence about the near-term outlook and fuller order books.
Price pressures moderated in August. Average input costs measured across both goods and services rose at the slowest pace since February. The cooling of services cost inflation from July’s 14-month high was especially marked, while factory input cost inflation moderated for a third month. However, both remained elevated by historical standards, blamed by survey contributors on high energy prices, squeezed supply lines, and tariffs. The average cost increase so far in the third quarter consequently slightly exceeds that seen in the second quarter despite August’s easing.
As input cost inflation dropped to the lowest since the start of the war in the Middle East, selling price inflation also moderated. Average prices charged for goods and services rose in August at the slowest rate since last November, softening to a ten-month low in services and a six-month low in manufacturing. Fewer reports of the need to pass through higher fuel and energy prices were a key driver of the reduced rates of increase.
Eurozone business activity continues to rise in August amid stronger manufacturing growth
- Flash Eurozone PMI Composite Output Index: 52.1 (July: 52.0). 9-month high.
Flash Eurozone Services PMI Business Activity Index: 51.7 (July: 51.7). Unchanged pace of growth.
Flash Eurozone Manufacturing Output Index: 53.4 (July: 52.9). 54-month high.
Flash Eurozone Manufacturing PMI: 52.8 (July: 51.9). 51-month high.
Japanese business activity expands at quickest rate for six months in August
- Flash Japan Composite PMI Output Index: 53.4 (July: 52.7)
Flash Japan Services PMI Business Activity Index: 52.3 (July: 51.2)
Flash Japan Manufacturing PMI: 55.1 (July: 54.5)
Flash Japan Manufacturing PMI Output Index: 56.1 (July: 56.3)
We just keep making history!
