By Philip Marey, Senior US Strategist at Rabobank

Treasury Secretary Scott Bessent was busy giving Powell forward guidance about his retirement yesterday. On Fox Business, he said that he thinks that it should be up to Jerome Powell whether he serves his term as Fed Chair through May 2026. He said: “There’s nothing that tells me that he should step down right now … His term ends in May. If he wants to see that through, I think he should. If he wants to leave early, I think he should.” However, on Bloomberg Television, Bessent added that he thinks that Powell should not stay on the Board after his Chair term ends in May 2026. He said: “Traditionally, the Fed chair also steps down as a governor …  There’s been a lot of talk of a shadow Fed chair causing confusion in advance of his or her nomination. And I can tell you, I think it’d be very confusing for the market for a former Fed chair to stay on also.” Note that Powell’s term on the Board lasts until the end of January 2028 and so far he has avoided giving an answer to the question whether he intends to remain on the Board after his term as Chair ends. Ironically, Bessent actually started this talk about a shadow chair in October last year, as an alternative plan to firing Powell. So now he uses it to argue for Powell’s resignation from the Board once his term as Chair expires.

With Adriana Kugler’s term as a Governor expiring at the end of January 2026, that would leave two slots on the Board to be filled by President Trump. As we argued in As the Fed turns, that could give Trump-loyalists a majority in the Board of Governors, after Waller and Bowman have turned recently. This is why we now expect the FOMC to step up the pace of rate cuts in 2026, after almost coming to a standstill this year: we expect only one rate cut this year, most likely in September. Regarding Powell’s successor, Bessent said that “There’s a formal process that’s already starting” and “There are a lot of good candidates inside and outside the Federal Reserve.” Asked whether Trump has asked Bessent himself to serve as Fed chair, he said, “I am part of the decision-making process.”

Meanwhile, at an event with the president of the Philippines, after reaching a trade deal that includes a 19% US tariff on imports from the South East Asian country, President Trump accused Powell of being “political” for not cutting rates this year and ignoring his demands to reduce the policy rate by around three percentage points. He said: “Our economy is so strong now, we’re blowing through everything, we’re setting records … People aren’t able to buy a house because this guy is a numbskull, he keeps the rates too high, and probably is doing it for political reasons.” Trump claimed that Mr. Powell had cut rates “just before the election to try to help Kamala, or whoever he was trying to help, he probably didn’t know.” Asked on Tuesday if the Fed chair should resign, Trump said he thought Powell had done a “bad job, but he’s going to be out pretty soon anyway.”

Ironically, in an interview on CNBC, Governor Bowman was paying lip service to Fed independence. She said that “It’s very important that we maintain our independence with respect to monetary policy, I think that’s very clear. But with that independence comes an obligation for transparency and accountability.” Perhaps she could give us some transparency and accountability about her remarkable conversion from überhawk in September last year, when she voted against a 50 bps rate cut because of inflation concerns, to ultra-dove now, pursuing an early rate cut in July. Does last month’s promotion to Vice Chair for Supervision by President Trump have anything to do with it?

Meanwhile in Europe, the ECB’s Bank Lending Survey indicated that the passthrough of monetary easing continues, albeit at different rates to firms’ and households’ behaviours. Our ECB watcher Bas van Geffen noted that firms’ loan demand improved somewhat, but remains weak. Uncertainty about the economic (trade) outlook remains the main cause cited. By contrast, demand for housing loans continued to increase strongly. Households’ loan demand is partially boosted by consumer confidence, but mostly by the decline in borrowing costs. The muted demand from firm’s is not entirely a story of weakness. Yes, the actual loan demand from companies was a bit lower in the previous quarter than banks had expected, but this partly seems to be driven by an increase in alternative financing – including more debt issuance. With that in mind, it’s not surprising that loan demand from larger companies lagged borrowing by smaller & medium-sized firms. That said, the Bank Lending Survey does support the conclusions from Monday’s Survey on Access to Finance of Enterprises: both indicate that fixed investment has been muted in the recent months, but companies remain optimistic about future investment. Turning to banks’ willingness to lend, Bas noted that there was a marginal tightening of credit standards for firms – despite monetary easing. This largely has to do with the uncertain economic outlook; funding costs and (fewer) balance sheet constraints helped to ease standards.  This was also reflected in the actual terms and conditions for corporate loans: these eased further. Overall, non-interest charges and margins on loans declined substantially, but the margins on riskier loans did increase somewhat.

In trade negotiations, the US and Japan reached a deal that would include a 15% reciprocal tariff rate imposed by the US on Japanese imports, which is lower than the 25% in Trump’s recent letter to Japan. Japan will also invest $550 billion in the US. Japan will also open to trade, including cars and trucks, rice and other agricultural products. Our energy strategist Florence Schmit notes that one of the beneficiaries of the US-Japan trade deal could be the $44bn Alaska LNG project which has been proposed in various forms for decades but made a comeback this year as the US tries to unleash even tighter energy dominance. Japan is the world’s second largest LNG buyer and has taken a hit from some Russian LNG sanctions already. Next week’s China-US negotiations might also discuss China’s demand for Iranian and Russian oil according to Bloomberg. Overall a muted reaction on energy so far today, crude still pretty rangebound in the high 60s and TTF is back above €33/MWh after the short drop to 32 yesterday.

Iran’s President Masoud Pezeshkian has said his country remains prepared and vigilant for any war Israel might launch against it, while conveying that he is not optimistic about the ceasefire continuing to hold.

“We are fully prepared for any new Israeli military move, and our armed forces are ready to strike deep inside Israel again,” Pezeshkian told Al Jazeera in a fresh interview. He emphasized that Iran’s nuclear program will continue, but asserted it is only for peaceful nuclear energy purposes.

“We are not very optimistic about it,” Pezeshkian said of the ceasefire which ended the 12-day war in June, which also saw America’s involvement at the tail-end. “That is why we have prepared ourselves for any possible scenario and any potential response. Israel has harmed us, and we have also harmed it. It has dealt us powerful blows, and we have struck it hard in its depths, but it is concealing its losses.”

He described Israel’s strikes as having sought sought to “eliminate” Iran’s hierarchy – including slain nuclear scientists, military leaders, and some top officials – “but it has completely failed to do so”.

The Iranian leader said that continued uranium enrichment would would be carried out “within the framework of international laws” – despite opposition from most international powers.

“Trump says that Iran should not have a nuclear weapon and we accept this because we reject nuclear weapons and this is our political, religious, humanitarian and strategic position,” Pezeshkian said.

“We believe in diplomacy, so any future negotiations must be according to a win-win logic, and we will not accept threats and dictates.”

And that’s when he issued his most directly challenging words to Trump yet, saying “that our nuclear program is over is just an illusion” while emphasizing “Our nuclear capabilities are in the minds of our scientists and not in the facilities.”

According to President Trump’s latest words on the matter, revealed in a Monday night Truth Social post, he’s ready and willing to order the US military to bomb Iran’s nuclear facilities again “if necessary”.

“Of course they are [destroyed], just like I said, and we will do it again, if necessary! As interviewed by Bret Baier,” Trump said in reference to Iranian Foreign Minister Abbas Araghchi having told Baier earlier that day that the nuclear sites were “very severely” damaged and “destroyed” by the US strikes.

Key clip from the FOX interview of the Iranian top diplomat’s words:

During an interview Monday with Fox New’s Bret Baier, Iranian Foreign Minister Abbas Araghchi admitted that several of Iran’s nuclear facilities had been “seriously damaged/destroyed” but that the extent of the damage is still under evaluation, adding that Iran is not currently… pic.twitter.com/wYs9ZudxSU

— OSINTdefender (@sentdefender) July 22, 2025

“Fake News CNN should immediately fire their phony ‘reporter’ and apologize to me and the great pilots who ‘OBLITERATED’ Iran’s nuclear sites,” Trump added, referring to a report that said US intelligence assessed the US airstrikes merely set back the program by a few months.

To some degree the Iranians could simply be playing Trump’s game in signaling to the US what he wants to hear. Even if the Islamic Republic’s nuclear sites were not fully and truly destroyed, it remains in Tehran’s best interest right now to present it as if it is so, regardless.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

On May 6, 2010, the US stock markets dropped nearly 10% within minutes. What would be called a “flash crash” wasn’t caused by news, economic data, or a Fed policy decision. According to the U.S. Commodity Futures Trading Commission (CFTC), a large sell order on E-Mini S&P 500 futures, executed by a mutual fund and triggered by an algorithm, was the culprit. Furthermore, the sell order triggered other high-frequency trading (HFT) algorithms to follow suit and sell. Before the 2010 Flash Crash, algorithmic trading was limited. Since then, it has become the dominant form of trading.

More recently, the rise of AI has become a key element in powering trading market algorithms.

As a result, AI is powering markets.

A strong macroeconomic outlook and solid technical analysis are no longer enough to give investors a fighting chance in the financial markets. Today, and even more so tomorrow, understanding how AI influences markets—the mechanics, benefits, and pitfalls of AI investors—is equally important. Therefore, it’s worth reviewing how AI drives markets.

AI On Display

AI is rapidly increasing the speed and accuracy needed for financial market research and trade execution.  It is quickly leaving humans and even non-AI-backed algorithms in the dust. Using massive amounts of data on prices, earnings, macroeconomic data, and sentiment, among other factors, AI can decipher trends and provide unique insight into how these factors might impact prices much faster than humans or more traditional models.  

Importantly, AI is entirely data-driven. Therefore, it removes our emotions and bias, providing cold, hard, calculated decisions.

Here are a few examples of how investors are currently using AI:

• Aladdin by Blackrock uses AI to crunch massive datasets, including stock prices, earnings, macroeconomic data, and more to build and rebalance portfolios. It manages risk and returns across thousands of assets in real-time, helping institutional investors, such as pension funds and hedge funds, stay ahead of most investors.

• TradeRiser monitors social media posts, news feeds, and earnings calls using natural language processing to assess investor sentiment. Investors can leverage it to identify stocks with a bullish or bearish “buzz” before most investors notice.

• CopyTrader by e-Toro lets retail or institutional investors mirror the trades of top investors in real time.

• Similarly, our SimpleVisor Simple AI tool allows users to evaluate stocks based on the investment principles of some of the world’s most esteemed investors. We share AI Ben Graham’s take on Apple below.

• Neural networks are designed to mimic the human brain, but much more efficiently. Neural networks spot complex, non-linear patterns that humans often miss.

Benefits For Investors And Markets

Instead of waiting hours, days, or weeks for traditional research, AI can quickly fine-tune portfolios and suggest trades based on the latest data. This ability to identify complex patterns and execute transactions swiftly gives both retail and institutional investors a competitive edge. When markets are volatile, like we saw in April, these advantages become even more significant.

Cost is another benefit of AI-powered tools. Because AI is not dependent on paid staff and other expenses that typically accompany most investment managers, AI can operate at a minimal cost. For instance, Betterment and WealthFront, two AI robo-advisors, charge a fraction of what traditional advisors charge. The affordability, combined with the sophistication of AI models, democratizes the financial markets, allowing small retail investors to behave like large institutional investors.

The benefits extend to all investors, not just those who depend on AI. AI-driven algorithms increase market liquidity, which can also help stabilize prices. Their ability to capitalize on arbitrage opportunities or short-term mispricing, such as during the 2010 Flash Crash, can reduce volatility to the benefit of all investors. Would the Flash Crash have occurred if AI had been available in 2010? Or, would it have been worse? Let’s now explore that question.

AI Market Risks

So far, we’ve mostly praised AI-powered investment tools. While the advantages are significant, it’s essential also to consider the cons.

We started this article by discussing how algorithms caused a flash crash in just minutes, with no clear fundamental cause. As AI use grows, many models may develop similar thinking patterns and responses. This groupthink could raise the risk of a flash crash or surge.

While it’s difficult to consider how a similar situation as 2010 might unfold today, we should also acknowledge that AI can identify discrepancies and arbitrage opportunities much faster than older, non-AI algorithms. As a result, they could potentially stop a flash crash before anyone even notices what happened.

While we believe AI can bring more stability, we also worry that it might create a higher baseline level of volatility. The speed of trading and the accuracy with which real-time sentiment is captured can cause rapid price swings.

For example, on July 16, 2025, little-known Congressional House member Anna Paulina Luna of Florida tweeted on X that she heard from President Trump that Fed Chair Powell was going to be fired immediately. In the past, such a post would have taken hours to circulate and have an impact on markets. The effect last week was lightning fast.

AI engines were searching all social media posts and looking for tradable news. It found it, and a sharp reaction ensued in the bond and stock markets, as we share below. In previous instances, the result may have been muted, as the President could have reacted more quickly and rebutted the comments before many market participants saw the rumor.

Fraud And Ethical Challenges

Market manipulation is another challenge posed by AI. As an example, malicious actors can exploit AI’s perception of sentiment through a series of fake social media posts. Additionally, they can use bots to amplify the spread of these false posts to a broader audience of investors. As the phony news circulates, the perpetrator can use AI algorithms to execute trades, lending further credibility to those posts. The aim is to deceive other AI algorithms, which are driven by price and sentiment, into following along.

Ethical challenges are another tricky topic. If AI has access to personal information, including your investment holdings and trades, will it share that with other AI engines? Proprietary knowledge, in addition to personal information, is also a risk.

Summary

The tremendous benefits of AI will come with a price. We highlight these advantages along with some challenges and risks.

Although we only scratch the surface of this topic, we hope it raises your awareness of how AI powers markets and, in turn, influences your wealth. 

We conclude by asking Grok to identify the three most significant benefits and risks associated with AI-driven algorithms.

Authored by Frank Fang & Eva Fu via The Epoch Times,

China is preventing a U.S. Patent and Trademark Office employee from leaving the country, the U.S. State Department confirmed on July 21.

“We are tracking this case very closely and are engaged with Chinese officials to resolve the situation as quickly as possible,” the State Department told The Epoch Times in a statement. “The Department of State has no higher priority than the safety and security of American citizens.”

The employee, traveling “in a personal capacity,” was “made subject to an exit ban,” the agency said.

The statement confirmed a report by The Washington Post on July 20 that an American citizen working for the U.S. Commerce Department had traveled to China to visit family several months ago, citing unnamed sources familiar with the situation. The individual was barred from leaving China because he had failed to disclose his employment with the U.S. government on his visa application, the report said.

The U.S. Patent and Trademark Office is a federal agency under the Commerce Department.

The State Department currently maintains a “Level 2” travel advisory for China, urging travelers to “exercise increased caution” due to “arbitrary enforcement of local laws, including in relation to exit bans.”

The advisory explains that Chinese authorities may impose exit bans to compel the individual to cooperate with investigations, pressure family members of the targeted individual to return to China from abroad, influence the outcome of civil disputes in favor of Chinese citizens, and “gain bargaining leverage over foreign governments.”

Sen. Jim Risch (R-Idaho), chairman of the Senate Foreign Relations Committee, responded to the incident by reminding Americans that communist China doesn’t observe the rule of law.

“American companies and citizens traveling to China need to be aware of how the Chinese government uses arbitrary exit bans as a form of hostage diplomacy,” Risch wrote on X on July 21.

“For those seeking to do business with China, this is a reminder that rule of law does not exist there—and your safety is at risk.”

Speaking at a press briefing in Beijing on July 22, Chinese foreign ministry spokesperson Guo Jiakun declined to provide details about the U.S. government employee.

Rush Doshi, director of China Strategy Initiative at the Council on Foreign Relations, said the exit ban on the Commerce Department worker “is a deeply disappointing red flag for those traveling to China.”

“It chills vitally important people to-people ties,” Doshi wrote in an X post on July 21. “But the reality is that you too could be trapped—possibly for years—if Beijing decides it needs leverage in talks with the US.”

The Chinese Communist Party has previously been accused of engaging in hostage diplomacy, most notably in the case of two Canadians, Michael Spavor and Michael Kovrig, whom Beijing released in September 2021 after they had been detained for nearly three years.

In a report published in May 2023, Spain-based human rights group Safeguard Defenders estimated that “tens of thousands” of people were subject to exit bans in China. The figure did not include individuals prohibited from leaving the country due to their religion, such as Uyghurs and Tibetans, the rights group said.

On July 21, the Chinese regime announced that it had imposed an exit ban on Mao Chenyue, an Atlanta-based managing director at Wells Fargo, accusing the banker of being “involved in a criminal case.”

In response, Wells Fargo has suspended all travel to China.

Responding to an inquiry from The Epoch Times regarding Mao’s case, the State Department stated, “Due to privacy and other considerations, we have no further comment at this time.”

The timing of the two cases coincides with ongoing trade talks between Washington and Beijing. Last month, both sides reached an additional agreement following negotiations in Geneva and London.

Update (1007ET): And here it is – DNI Tulsi Gabbard on Wednesday released more damning evidence against the Obama administration, which she says exposes how they “manufactured the January 2017 Intelligence Community Assessment that they knew was false, promoting the LIE that Vladimir Putin and the Russian government helped President Trump win the 2016 election.”

“In doing so, they conspired to subvert the will of the American people, working with their partners in the media to promote the lie, in order to undermine the legitimacy of President Trump, essentially enacting a years-long coup against him.”

According to Gabbard, “Here are the top Obama Russia Hoax lies debunked by today’s release.“

LIE: Putin and the Russian Government helped Trump win the 2016 election

TRUTH: President Obama, former Director of the CIA John Brennan, and others fabricated the Russia Hoax, suppressed intelligence showing Putin was preparing for a Clinton victory, manufactured findings from shoddy sources, disobeyed IC standards, and knowingly lied to the American people.

LIE: The fabricated Steele Dossier was not used as a source in the Obama Administration’s January 2017 Intelligence Community Assessment of the November 2016 election

TRUTH: Not only did CIA Director Brennan, FBI Director Comey, DNI Clapper and others include the Steele Dossier in the 2017 ICA, they overruled senior Intel officials who warned them it was fabricated and should not be used.

LIE: The Obama Administration’s January ICA was an independent Intelligence Community product, produced with apolitical analysis.

TRUTH: Obama ordered the Intelligence Community to create an Intelligence Community Assessment they knew was false, promoting a contrived narrative, with the intent of undermining the legitimacy and power of a duly elected President of the United States, Donald Trump.

Together, the @ODNIgov records released on Friday, the @TheJusticeDept’s June 2018 report known as the “Clinton annex” released earlier this week, and the @HouseIntel oversight report we released today confirm what many Americans have known: The Russia Hoax was a lie that was knowingly created by the Obama Administration to undermine the legitimacy and power of the duly elected President of the United States, Donald Trump

*  *  *

Authored by Matt Margolis via PJMedia.ocm,

Barack Obama’s team is in full damage control mode after Director of National Intelligence Tulsi Gabbard declassified and released evidence that Obama and his top officials in his administration knowingly fabricated intelligence to push the false narrative that Trump was compromised by Russia—an operation designed to delegitimize his election and kneecap his ability to govern.

On Tuesday, Barack Obama released a statement  through a spokesman in response to the recent release of Russiagate documents implicating the former president in the effort to delegitimize Trump’s presidency.

“Out of respect for the office of the presidency, our office does not normally dignify the constant nonsense and misinformation flowing out of this White House with a response,” the statement read.

“But these claims are outrageous enough to merit one. These bizarre allegations are ridiculous and a weak attempt at distraction.”

But, Gabbard isn’t backing down.

In an appearance on “Rob Schmitt Tonight” on Newsmax Tuesday, she announced that her team will be releasing documents that directly contradict Barack Obama’s latest attempt to rewrite the history of the Russia collusion hoax.

“We will be releasing further documents tomorrow that will refute that statement,” Gabbard said, dismissing the statement outright as part of pattern of misinformation pushed by top Democrats and their allies in the media ever since the release of what she called the “manufactured intelligence document” in January 2017.

She didn’t stop there. “We will be pulling a whole host of statements that were made by the Obama administration, by Hillary Clinton, by senior Democrat officials, by their friends in the media,” she said. “They state over and over again after this January 2017 manufactured intelligence document was created that repeat the narrative.”

Gabbard laid out a damning list of examples.

“The New York Times says, ‘Russian hackers acted to aid Trump in the election,’” she quoted.

“Obama’s CIA Director John Brennan says, ‘There is strong consensus among us… to support the CIA claim Russian hackers aided Donald Trump’s election.’”

And of course, Hillary Clinton’s infamous refrain: “I would be president if not for the Russian hackers supporting Donald Trump.”

“There is a vast body of evidence and intelligence that debunks and refutes this statement you’ve just read and others coming from some of the Democrat leaders in Congress today,” Gabbard concluded.

🚨 BREAKING: DNI Tulsi Gabbard just said *TOMORROW* she is releasing more Trump-Russia 2016 Hoax Files that directly “REFUTE” Barack Hussein Obama’s statement today.

Holy smokes, Tulsi came ready.

“We will be releasing further documents tomorrow that will REFUTE that… pic.twitter.com/lsfvHV1s8g

— Eric Daugherty (@EricLDaugh) July 22, 2025

With more documents expected to drop soon, Gabbard is making it clear she intends to expose the Obama-era narrative for what it was—an orchestrated political operation designed to undercut the legitimacy of a duly elected president.

Now that the truth is starting to trickle out, the Obama crowd is sweating—and for good reason. Tulsi Gabbard’s document drops are pulling back the curtain on what looks like a coordinated effort by Obama and his top brass to sabotage a duly elected president using fake intelligence and a complicit media echo chamber. The phony Russia narrative was a deliberate attempt to delegitimize Trump before he even took the oath. And now, the evidence is catching up. 

No matter how hard Obama’s lackeys try to spin it, accountability is coming. And they know it.

The walls are closing in on Obama’s deep state operatives—finally! 

After a small bounce in May (off 15 year lows), expectations are for existing home sales to fall once again in June as mortgage rates ticked up.

The analysts were right as sales dropped 2.7% MoM (vs -0.7% MoM expected), leaving existing home sales unchanged year-over-year…

Source: Bloomberg

Source: Bloomberg

The median sales price increased 2% in June from a year ago to a record high of $435,300…

Home prices continue to rise even after a recent pickup in inventory.

“Multiple years of undersupply are driving the record high home price. Home construction continues to lag population growth,” Lawrence Yun, NAR chief economist, said in a statement.

“High mortgage rates are causing home sales to remain stuck at cyclical lows.”

Yun said on a call with reporters that it’s typical to see high home prices this time of year because families want to move before the school year begins.

Economists at Goldman Sachs said in a recent note that 87% of mortgage holders have rates below current rates, and two-thirds have borrowing costs 2 percentage points below current rates, “strongly disincentivizing them from moving.”

Source: Bloomberg

Yun said an NAR analysis showed that a 6% mortgage rate would lead to about a half million more homes sold and an additional 160,000 renters becoming first-time homeowners.

“Housing in our Country is lagging because Jerome ‘Too Late’ Powell refuses to lower Interest Rates,” Trump said in a social media post Wednesday, referring to the Fed chair.

“Families are being hurt because Interest Rates are too high.”

In a sign that buyers are balking at high asking prices, 21% of the homes sold were above list price, down from 28% in May.

A Japan-US Trade Deal was announced late on Tuesday, with reciprocal tariffs lowered from 25% to 15%.
Japanese stocks got an additional boost from news that auto tariffs will also be 15%, down from 27.5%, sending Toyota on its best day since 1987. Equities rose over 3.5% with the TOPIX closing just shy of all-time highs. In rates, re-pricing for BoJ hikes sent JPY yields higher; 10y JGB reaching 1.6%. USDJPY initially moved lower but has creeped higher on news of PM Ishiba considering to step down from office. However, PM Ishiba has since denied these reports (unclear just how he plans on staying in power after this weekend’s catastrophic loss in the Upper House elections), which in turn hammered the USDJPY again.  

Goldman Delta-One head Rich Privorotsky writes that Japanese autos surged double digits after the 15% tariff deal caught the market of, noting that guard (Polymarket had odds of a Japan deal by Aug 1 at ~20% ). In the context of 25% tariffs on Canada and Mexico, Rich thinks the market was “surprised Japan auto’s securing a more favorable status, even compared to what some U.S. automakers pay to import their own supply chains.” He adds that 15% Japan tariffs would have been unthinkable just months ago, but “now, Japan’s stock market is near all-time highs…art of the deal.“

“By accepting a diluted 15% tariff and pledging symbolic investment flows, Japan has offered a blueprint: concede just enough to defuse escalation without triggering deep structural reform,” said Charu Chanana, chief investment strategist at Saxo Markets.

Here are the main Takeaways:

• US Tariffs to Japan reduced from 25% to 15%. Japan is the 5th country the US has reached bilateral agreements with following UK (10%) , Vietnam (20%), Philippine (19%), and Indonesia (19%). 
• Auto tariffs are included, reduced from 27.5% to 15%. Shares of auto companies soar higher having priced in much higher tariffs. 
• White House say tariffs on drugs and chips to be negotiated separately, will not be worse than other trading partners
• Pricing for BoJ hikes returns – With the clearing of trade uncertainty and reduced tariff impact, markets are pricing for an earlier BoJ hike. Banks stocks move higher
• JPY Rates Front End –  Yields surge on increased BoJ hike prospects. Further moves from here, however, would require higher terminal yields. 
• JPY Rates Back End – Fiscal Concerns continue with reports of PM Ishiba stepping down. Weak demand for 40y JGB auction as expected as yields climb higher
• USDJPY – Rangebound with rates price action in driver seat. Two opposing factors looking to take control with Stronger JPY on trade agreement vs Weaker JPY on PM Ishiba stepping down seen intraday.
• JP Equities Themes: Exporters vs Domestic Demand, Defense Sector, Banks, and more…

Below we excerpt from a note published by Goldman’s trading desk focusing on the market reactions across different asset classes. 

Japan Headlines: Tariffs Agreement, PM Ishiba stepping down (or not?)

Earlier today, it was announced that US Tariffs to Japan will be reduced from 25% to 15%. Japan is the 5th country the US has reached bilateral agreements with following UK (10%) , Vietnam (20%), Philippine (19%), and Indonesia (19%). Notably, this deal includes auto tariffs which go “from from 27.5% (existing tariff of 2.5% + additional tariff 25%) to 15% (existing tariff of 2.5% + additional tariff 12.5%)” and Japan will “invest ¥80 tn in the US, create hundreds of thousands of jobs in the US, and open up the country to trade in automobiles, trucks, and other US agricultural products.” 

This agreement comes shortly after Japan’s Upper House Election over the weekend in which the ruling coalition (LDP + Komeito) lost its majority. Following the defeat, PM Ishiba had indicated his willingness to continue as prime minister, citing the importance of political stability whilst trade negotiations with the US were ongoing. 

Source: Goldman

Following the trade agreement, multiple news outlets reported midday that PM Ishiba has decided to step down by the end of August. However, PM Ishiba later denied these reports stating there is no truth to the reports he will be stepping down, even though it is unclear how he can credibly remain in charge after the huge drubbing in the elections. 

BoJ Hikes : Pricing Returns to Front-End Yields

With more clarity around US Tariffs on Japan and announced reduced tariff impact, markets are repricing for an earlier BoJ hike. 

According to Goldman STIR trader, Hosik Moon, “[The] Tariff deal has come much earlier than market expected and 15% should be considered satisfying result comparing with other countries. This will potentially pull the timing of BOJ’s next hike earlier as the Trump Tariff has been the only reason that pushed the October hike consensus to January next year”. 

Front-end pricing in JPY Rates has moved higher to reflect this shift in sentiment. 1y1y JPY OIS Swap has risen to 96bp while 2y1y is now at 107bp. Hosik notes that this coincides with levels that “are traded when terminal rate expectations are 1.25%-1.5%”. 

Moving higher than these levels would require a repricing of terminal rate expectations. 

Source: Goldman

JGB Curve: 40y Auction Low Demand, Curve Bear Flattening 

The front-end of the curve led sell-offs on the resurgence of BoJ hiking bets. The belly and back-end of the curve also saw strong selling pressure as 10y JGBs reached 1.6%. The 40y JGB auction also took place today, resulting with the weakest demand since 2011 as supply-demand dynamics have deteriorated in the sector. 

Given the Upper House Election results, fiscal expansion concerns will likely continue to drive back-end yields higher. Furthermore, as front-end pricing likely has reached the higher end of its range (that reflects terminal rate of 1.25%-1.5%), the curve can continue to steepen from here. 

Goldman Japan rates strategist Sung Mo Koo highlights that “[a]s in Deputy Governor Uchida’s press conference today, the agreement contributes to lower uncertainty in Japanese economy and higher likelihood of achieving the 2% inflation target. Market should find better demand at current level for up to 10y sector, whereas the ongoing fiscal concern due to political uncertainty is likely to drive back-end yields higher. Ultra-long end sector has been supported by foreigners in CY2025 as their net purchase amount skyrocketed by more than sevenfold year-to-date, but such trend is unlikely to continue long term.”

Source: Goldman 

USDJPY : Rangebound, Bouncing on headlines

USDJPY initially moved lower on the back of Japan-US Trade deal. However, headlines around PM Ishiba potentially stepping pushed the USDJPY back above 147. As a result, USDJPY has been stuck range bound in the 146-147 area. 

Goldman’s FX trader Kentaro Kawahara chimes in and notes that USDJPY remains “in a range with the rates price action in the driver seat”. He sees both USD Rates and JPY Rates contributing to the current USDJPY move. In terms of the next catalyst, he notes PM Ishiba stepping down would contribute to fiscal concerns with the outcome dependent on who becomes the next PM. Given the Upper House Election results, fiscal expansion concerns will likely drive USDJPY higher. 

At the moment however, more clarity is needed on the political front and USDJPY will remain range bound led by rate differentials. 

Source: Goldman

JP Equity: All-time high and abundant with themes

The Topix is close to an all-time high while the Nikkei index closed 3.51% higher. Needless to say, the trade agreement provides a huge boost to Japanese corporations as trade related sectors receive a massive boost to their outlook. 

According to Goldman Sales Trader Sophie Stanton, following the tariff announcements, themes around “Exporters vs Domestic Demand have surged”. Particularly, beneficiaries of this deal are “AUTOs with better than expected tariff rates (15%) & 15% YTD underperformance vs Topix (GSXAJPAM Index) and USD Earners (GSXAJPIN Index).” On the other hand, Inbound Tourism (GSXAJPTR Index) and Domestic Demand (GSXAJDCO Index) saw retracements as rotation into the prior themes took place.” 

Source: Goldman 

Sophie also highlighted that “Banks are finding bids after being ‘neglected’ as of late given the improved risk sentiment along with Semiconductors with relative underperformance following global peers”. 

Source: Goldman 

Another interesting theme that has emerged following the Upper House Election results is the decrease in defense spending. Enna Hattori (Equity Derivative Sales) writes that “[i]t’s difficult to ascertain where Nikkei goes in the event Ishiba resigns as the market is likely already pricing in the possibility to some degree. That said, the pocket of the market that is most likely to be impacted is Defense, given Ishiba’s support for defense spending. The sector remains well-loved, but a resignation could trigger an unwind either in the sector specifically or across MOMO more broadly.”

In a major breakthrough and short-term diplomatic ‘win’ for the Zelensky government, Germany and the United States have agreed to supply Ukraine with five more Patriot air defense systems, German Defense Minister Boris Pistorius announced on Monday.

The defense chief revealed the move at the 29th meeting of the Ukraine Defense Contact Group, describing that the deal was finalized during his recent visit to Washington, where he met with US Defense Secretary Pete Hegseth. “We will coordinate closely in the coming days to determine how best to achieve this,” Pistorius confirmed.

He additionally affirmed that Germany will also provide air defense ammunition and fund Ukrainian-made long-range drones.

This is despite German government officials previously expressing alarm that the country’s remaining stocks were too low to support additional transfer; however Pistorious sought to address this elephant in the room by announcing the US has agreed to supply Germany with replacement systems originally ordered by Switzerland. Delivery is likely years away though.

“Delivery of the systems, worth billions of euros, to Switzerland was scheduled to begin in 2027 and be completed in 2028,” EuroNews emphasizes.

The German government has already sent three of its dozen Patriot batteries to Ukraine. Two more are currently stationed in Poland, and others are used for NATO operations and training. Germany currently only has six, Pistorius disclosed.

The announcement comes as Russia intensifies its long-range missile attacks on Ukraine, increasingly using ballistic missiles, which ironically is a threat that only the Patriot system is capable of effectively intercepting.

In the early hours of Monday, Russian strikes hit the Ukrainian capital, killing one person and injuring at least six others, according to local officials.

Other European countries, are also meanwhile digging deep to provide more support for Ukraine – amid reports that Washington has stepped back compared to the opening years of the war.

“As well as the contribution to the Patriots, Brekelmans said the Netherlands would also provide more missiles for Ukraine’s small operational fleet of F-16 fighter jets, more radars and counter-drone technology,” Newsweek details. “The Netherlands was one of four countries that pledged to deliver fourth-generation Western jets to Kyiv.”

Authored by Evgenia Flimianova via The Epoch Times (emphasis ours),

The UK government gave the final go-ahead on Monday for the Sizewell C nuclear power plant to be built in eastern England after securing investment from Canadian pension fund La Caisse, Centrica, and Amber Infrastructure.

Sizewell C in Suffolk will be the UK’s second new nuclear plant in more than two decades, following the government’s 2013 deal with EDF to build Hinkley Point C in Somerset, which is now expected to come online in 2029 after years of delays and cost overruns.

The state will be the largest shareholder in the Sizewell C project with a 44.9 percent stake. La Caisse will hold 20 percent, energy firm Centrica 15 percent, and London-based Amber Infrastructure will take an initial 7.6 percent, joining France’s state-owned EDF, which had already announced its 12.5 percent stake.

The new plant will be the third nuclear station at the Sizewell site, following Sizewell A and B, both of which are being decommissioned.

Sizewell C was initially proposed in the early 2010s as a joint project between EDF and China General Nuclear Power Group (CGN). The UK government removed Chinese involvement in 2022, buying out CGN’s stake due to national security concerns.

The plant is expected to deliver clean power to the equivalent of 6 million homes and create up to 10,000 jobs at the peak of construction, the government said.

It also estimates the plant could save the UK electricity system around 2 billion pounds ($2.6 billion) per year on average, once operational.

“This government is making the investment needed to deliver a new golden age of nuclear, so we can end delays and free us from the ravages of the global fossil fuel markets to bring bills down for good,” Energy Secretary Ed Miliband said.

Funding, Overruns

The government said Sizewell C will be financed using a regulated asset base (RAB) model, allowing developers to recover certain development costs before construction begins.

These costs may include setting up the project company, preparing the supply chain, and conducting site investigations.

UK ministers said the project has secured more financing than the estimated 38 billion pound ($51 billion) construction cost, providing a buffer against overruns. The funding model encourages cost control by making investors, not taxpayers, bear the risk of budget overruns, the government said.

Alongside the agreed private investment, the National Wealth Fund—the government’s principal investor and policy bank—will provide most of the project’s debt financing, working with France’s Bpifrance Assurance Export to support construction of the plant.

Quebec-based global investment group La Caisse, which operates Canada’s second-largest pension fund, said it was investing up to 1.7 billion pounds ($2.3 billion) in the project.

“Our investment demonstrates our confidence in the UK market, our largest destination outside North America, and aligns with our commitment to the energy transition and decarbonization, enabled by our long-term capital and active ownership” La Caisse’s Head of Infrastructure Emmanuel Jaclot said in a July 22 statement.

Centrica said in a statement it had committed construction funding of 1.3 billion pounds ($1.7 billion).

“This isn’t just an investment in a new power station, it’s an investment in Britain’s energy independence, our net zero journey, and thousands of high-quality jobs across the country,” Centrica Group Chief Executive Chris O’Shea said on Tuesday.

France’s EDF said the project will support the French nuclear industry by involving about 40 French suppliers and lowering costs for future EPR2 reactors, the next-generation evolution of the European Pressurized Reactor design.

EPR2 is central to France’s plan to build at least six new reactors by 2050, as announced by French President Emmanuel Macron in 2022.

Global Nuclear Revival Gains Momentum

Britain’s Sizewell C decision comes amid a broader global nuclear revival, as countries seek to strengthen energy security, meet climate goals, and reduce reliance on fossil fuels.

In the United States, tech giants such as Microsoft, Amazon, and Google have signed long-term nuclear energy deals to power data centers. Last year, Microsoft entered a 20-year power purchase agreement to reopen Pennsylvania’s closed Three Mile Island (TMI) nuclear power plant.

The war in Ukraine and efforts to cut greenhouse gas emissions by 2030 returned nuclear energy to the European Union’s policy agenda. That includes the creation of the European Nuclear Alliance in 2023 to promote nuclear power as part of the bloc’s climate strategy, along with calls from EU leaders for the region to produce more of its own nuclear energy.

In Japan, utility giant Kansai Electric Power Co. announced on Tuesday that it is considering building the country’s first new nuclear reactor since the 2011 Fukushima disaster.

The company has resumed surveys for a potential project at its Mihama Nuclear Power Plant site.

Having managed to derail populist, NATO-skeptical presidential candidates through a variety of extraordinary means, Romania — bowing to pressure from NATO and President Trump — announced it will spend $2.3 billion on Israeli anti-aircraft systems to fend off the supposed Russian menace.

The big-ticket, Israel-benefitting purchase comes even as Romania is poised to impose dramatic austerity measures to address its deteriorating financial condition. Romania’s 2025 deficit will be the largest in the country’s history. At roughly 9% of GDP, its deficit is also the EU’s highest by that measure. The alarming numbers have triggered reprimands from the European Commission, which asked Romania to bring its deficit down to 2.8% of GDP by 2030. At last month’s NATO summit, the organization’s members bent to Trump’s long-running demands, agreeing to more than double their targeted military spending — from 2% of GDP to 5% — by 2035.  

Working hard to rationalize the outlay, Reuters’ report on the Israeli deal notes that Romania “has had Russian drone fragments fall in its territory repeatedly over the past two years.” The Times of Israel bolstered the narrative with a headline claiming “Romania [is] on edge over Russia.”

Last year, Romania seemed poised to elect the deeply NATO-skeptical populist Calin Georgescu, who won the first round of Romania’s two-round presidential election. Citing supposed Russian interference, the country’s Constitutional Court threw out the election and ordered it to be started anew. In a May triumph for the EU establishment, centrist Bucharest mayor Nicusor Dan prevailed.  

Romania’s pending redistribution of $2.3 billion of its wealth to Israel’s booming arms industry comes as the government is  poised to unleash drastic austerity measures that are certain to stoke resentments. Potential moves include firing 20% of the country’s civil service workers, increasing value-added taxes, and increasing taxes on profits and dividends from 10% to 16%. “This correction is so extensive, so far-reaching, that pain cannot be avoided,” former finance minister and current head of the Romanian Fiscal Council Daniel Daianu told Politico. 

Meanwhile, Romania will shower $2.3 billion on an Israeli arms industry already enjoying record revenues. Hitting a new high for the fourth consecutive year, Israeli weapon sales totaled just under $14.8 billion in 2024. European customers accounted for 54% of exports, the Times of Israel reports. 

Under the new arms agreement, Romania will buy short-range and very-short-range anti-aircraft systems from Israel’s Rafael Advanced Defense Systems, with contracts encompassing training, logistical support and ammunition. The first two V/SHORAD systems will be delivered within three years of the contract’s signing, which is expected this fall. The Defense Post reports that Rafael submitted its SPYDER missile systems in the bidding competition. Rafael defeated South Korea’s LIG Nex1, European multinational MBDA and Germany’s Diehl Defence.  

Too many conservative Americans clap like seals when Trump demands that European countries spend more money on “defense” — seemingly oblivious to the fact that higher defense spending by European governments is not geared to achieving lower defense spending by the US government. Indeed, in a matter of several weeks during his new term, Trump went from oratorically aspiring to partner with Russia and China to cut the three countries’ military budgets in half, to enthusiastically announcing his approval of a Pentagon request to lift spending to a record $1 trillion.

Fittingly, Trump did so in an Oval Office session with Israeli Prime Minister Benjamin Netanyahu at his side. Turning to the man who would soon drag Trump into a war on Iran launched on false claims about Iran’s nuclear program, Trump said, “You’ll like to hear of this.”