The T+G note has been dominated by the war in Iran and resulting energy and supply chain shocks for the past three months. While that coverage continues again this week, we add in an expanded focus on the Donroe Doctrine, its impact on the U.S. economy, upcoming Latin elections, and most dramatically, the rising prospect of a Venezuela-type U.S. intervention operation in Cuba. Both the Middle East and the Latin fronts are now converging for the national and economic security apparatuses of the Trump Administration. As such, President Trump has remained in Washington over the extended Memorial Day weekend to actively work through his geopolitical agenda. Taken all together, the U.S. is closer today to a peace agreement with Iran, along with decisive action in the Caribbean, and further U.S.-alignment of Central and South America.
Meanwhile, the highly anticipated Beijing summit produced “constructive strategic stability,” a reframing of the relationship by President Xi Jinping away from his previous formulation of “strategic rivalry.” Deliverables included new boards of “Trade” and “Investment,” Chinese purchase of 200 Boeing jets and $17 billion in annual agricultural commitments, a future line of communication around AI guardrails, a discussion of the Iran war, and rare earth and processing equipment access. The media continues to focus on Taiwan, with the pause of a scheduled $14 billion arms sale and Trump’s description of the military package as “a very good negotiating chip” fueling its hyperbole.
On the non-China trade front, the EU provisionally ratified the U.S. Agreement on Reciprocal Trade (ART), the CIT’s Section 122 decision was predictably appealed, and over $35 billion in International Emergency Economic Powers Act (IEEPA) refunds have thus far been processed. USMCA negotiations remain in the same status: friction with Canada and security concerns with Mexico. With Kevin Warsh now sworn-in as Chair of the Federal Reserve, the June Federal Open Market Committee (FOMC) meeting will offer the first view of his ability to dissuade the Board from raising interest rates.
IRAN WAR
On Wednesday, President Trump said the U.S. was in the “final stages” of Iran talks and separately that he was “in no hurry.” The contours of a potential deal appear to be a two-step process whereby hostilities would end, the Strait would reopen, and the U.S. naval blockade would be lifted; followed by a negotiating window over the more difficult issues, including sanctions relief, frozen assets, and most importantly, Iran’s nuclear program.
Indeed, President Trump appears to be softening his rhetoric on enriched uranium, publicly changing his demand from a permanent ban to a 20-year limitation. In addition, Trump cancelled a purportedly planned strike on Iran early last week at the “personal request” of Qatari Emir Tamim bin Hamad Al Thani, Saudi Crown Prince Mohammed bin Salman, and UAE President Mohammed bin Zayed Al Nahyan. Yet, Iran’s negotiating posture remains publicly obtuse. A statement released from Supreme Leader Ayatollah Mojtaba Khamenei affirmed that Iran would never allow its enriched uranium to leave the country. Even the supposedly pragmatic diplomatic core of the regime expressed “no trust” in the U.S. side, leading Iranian Parliament Speaker Mohammad Bagher Ghalibaf to conclude that both sides are in a “war of wills.”
The Iranian rhetoric, however, belies the state of its economy. The country is enduring its longest internet blackout in recorded history with connectivity at approximately 1% of pre-war levels, costing an estimated the country $5.2 billion. The rial is at 1.81 million to the dollar; inflation at 68.9%; and GDP contracting to 6.1%. While the U.S. naval blockade creates an imposing physical barrier for Iran’s economy, Treasury’s “Operation Economic Fury” has steadily tightened its global financial chokehold over the regime, issuing additional sanctions this past week, including upon the IRGC’s Shahid Purja’fari Oil Headquarters, 19 vessels, the Amin Exchange network, and front companies across Hong Kong, the UAE, and Turkey. Since National Security Presidential Memorandum 2, OFAC has sanctioned more than 1,000 persons, vessels, and aircraft.
With this backdrop, President Trump cancelled his weekend trip to his Bedminster golf club and returned to Washington on Friday, a change from the original schedule released by the White House early Friday. Trump simultaneously announced on Truth Social that he would not attend his son Donald Trump Jr.’s wedding in the Bahamas on due to “circumstances pertaining to Government.”
Instead, Trump held a call on Saturday with leaders from Saudi Arabia, the United Arab Emirates, Qatar, Pakistan, Turkey, Egypt, Jordan, and Bahrain. Pakistan Prime Minister Shehbaz Sharif praised Trump’s “extraordinary efforts” and characterized the call (Pakistan was represented by army chief Asim Munir) as “very useful and productive.” With that, Trump posted to Truth Social that “An agreement has been largely negotiated” and “Final aspects and details of the Deal are currently being discussed, and will be announced shortly.” He further affirmed that the Strait would be reopened.
Pakistani and Qatari mediators in Tehran now believe a deal is emerging to extend the ceasefire by 60 days while creating a framework for negotiating the future of Iran’s nuclear program. Reporting suggests that the nascent agreement would include a gradual reopening of the Strait and a commitment to either dilute or hand over Iran’s highly enriched uranium. The U.S. would then ease its blockade and provide sanctions relief, including unfreezing some of Tehran’s assets. U.S. Secretary of State Marco Rubio, speaking from India, predicted “good news” and stated that “significant progress although not final progress” had been made. Rubio both affirmed a complete reopening of the Strait as part of any deal and an “ultimate goal” for Iran to “never have a nuclear weapon.”
Summarizing a call Saturday evening between President Trump and Israel Prime Minister Benjamin Netanyahu, an Israeli official said Trump had “made clear that he will stand firm” on the demand for the removal of all enriched uranium from Iran and the “dismantling” of the regime’s nuclear program. According to the official, Trump “will not sign a final agreement without these conditions being met” and Israel will “maintain freedom of action against threats in all arenas, including Lebanon.”
Iran’s semi-official Tasnim news agency confirmed many of the above details, including reopening the Strait to pre-war transit levels within 30 days along. But additional details pushed by Tasnim created a firestorm within U.S. Iran hawk circles throughout the Sunday media cycle. In question is how and when the unfreezing of Iranian assets and U.S. sanctions relief would take place, and most importantly, how those concessions will interact with Iran’s nuclear commitments. Tasnim’s reporting that the nuclear program would be negotiated over the 60-day window but only after the U.S. blockade had been removed, assets unfrozen, and sanctions waived, led Senate Armed Services Committee Chairman Roger Wicker (MS) to call the details a “disaster” and Senator Lindsey Graham (SC) to assert that it would allow the regime “to survive and become more powerful over time.”
Seeking to quell internal party backlash, Trump posted throughout Sunday qualifying that he had instructed U.S. negotiators “not to rush into a deal” and that the blockade would remain in full effect “until an agreement is reached, certified, and signed.” The President also reasserted that Iran “cannot develop or procure a Nuclear Weapon or Bomb,” seeming to acknowledge a key line of criticism against the emerging agreement. Working through media intermediaries, the Administration has been further defining the contours of a potential agreement over the last 24 hours. Chief among those intermediaries is Scott Jennings of CNN. According to a Jennings’ X post, the White House is unequivocal that Iran will not receive sanctions relief or returned assets without first turning over its nuclear stockpile. The two steps of the deal, according to Jennings’ post are as follows:
- Step 1 – Open Strait of Hormuz. Iran agrees to give up enriched uranium.
- Step 2 – Get the nuclear material turned over. Only then can Iran get sanctions relief.
This morning, the President significantly upped the ante for the peace agreement. In a post on Truth Social shortly after 8am, Trump “mandatorily” requested that those countries involved in the negotiations—Egypt, Jordan, Pakistan, Qatar, Turkey, Saudi Arabia—sign on to the Abraham Accords, normalizing relations with Israel. Trump simultaneously threatened that if Qatar and Saudi Arabia did not sign the Accords, they would be left out of the emerging peace agreement with Iran. Though many of these countries have been working with Israel throughout the war, including signing defense cooperation agreements for the first time in history, a complete recognition of the Israeli state without the precondition of a Palestinian state is a potentially massive geopolitical shift. Whether Trump’s demand produces additional Abraham Accords signatories or not, it has at the very least added a significant new hurdle for negotiators to clear in the hours and days ahead.
Oil and Shipping
On Wednesday, two supertankers carrying Iraqi oil to China and a third carrying Kuwaiti oil to South Korea transited the Strait of Hormuz, collectively carrying approximately 6 million barrels. Wednesday’s supertanker transits sent Brent 5.6% lower to $105 and the 10-year fell 10 basis points to 4.57%. While the market views any transit, however isolated, as reason for optimism, Windward notes that the Strait “is no longer a closed corridor but a contested and tiered-access environment.” Moreover, the U.S. blockade remains intact and fully enforced. In a first, CENTCOM confirmed that Marines boarded and searched an Iranian-flagged oil tanker suspected of violating the blockade.
The reality is what International Energy Agency (IEA) Executive Director Fatih Birol calls “the greatest threat to global energy security in history” and the fastest stockpile depletion pace in IEA recorded history. Global inventories drew down at 4 million bpd in April. Last week’s U.S. Strategic Petroleum Reserve (SPR) release of 1.2 million bpd was the single highest weekly release ever recorded. At this pace, the SPR will be exhausted by early September. The result, Shell CEO Wael Sawan says, is shortages that stretch well into 2027.
To be sure, domestic policies throughout the globe have curtailed demand, but the math is robust. Cumulative supply losses exceed one billion barrels. Refinery crude throughputs are forecast to drop by 4.5 million bpd in Q2. U.S. output via increased production and record SPR releases have helped fill the gap, with net exports of U.S. crude and refined products averaging a record 5.9 million bpd over the past four weeks. As previously noted, American companies including Permian operator Diamondback and shale driller Continental Resources are expanding capacity. Continental’s Harold Hamm told the Financial Times he planned to increase capital expenditure by about $300 million to a total of $2.8 billion in 2026. Publicly listed shale producers collectively increased forecasts for capital expenditure this year by $490 million in their Q1 results when compared with guidance issued three months ago (Enverus). Since the start of the war, U.S. producers have added 18 rigs, bringing the domestic total to 425.
Still, specific industry consumers remain exposed, particularly agriculture and commercial air travel. Urea, farm diesel, and other derivatives are all elevated, leading to severe fertilizer price increases and scarcity. Rising fuel prices and food shortages have triggered deadly protests in Kenya and Comoros and a transport strike in Mozambique, making a political instability crisis a reality in sub-Saharan Africa.
Commercial aviation’s vulnerability was most dramatically seen in the recent collapse of Spirit Airlines. Domestically, California is experiencing the most acute issues as LAX jet fuel briefly hit $15 per gallon. The opening of the FIFA World Cup in June will only increase the demand pressure on the West Coast. Even still, Ryanair CEO Michael O’Leary said last week that he has “almost zero concerns” about jet fuel shortages.
Ultimately, nothing can fully replace the 14 million barrels per day that remain stranded in the Gulf absent a peace agreement with Iran. Lloyd’s Market Association confirmed that while 88% of insurance participants retained appetite to write hull war risks, few operators are availing themselves of policies. Similarly, the DFC’s newly-created $40 billion maritime reinsurance facility has yet to write a single policy. Thus, the physical fear among shipping owners will only abate if and when a durable peace agreement is reached and Hormuz fully opens.
Ancillary Conflicts
The U.S.-facilitated Israel-Lebanon talks at the State Department produced a peace framework agreement for negotiations and a 45-day cessation of hostilities extension. The political track reconvenes on June 2 while the security track launches at the Pentagon on May 29.
Despite the increased energy revenue resulting from the Iran war, Russia cut its 2026 GDP growth forecast to 0.4% from 1.3%, with the accumulated cost of three years of maximum military-industrial output stretching its budget and economy to its limits. Reflecting on the war, Chinese President Xi Jinping reportedly told President Trump during their Beijing summit that Russian President Vladimir Putin may come to “regret” his decision to invade Ukraine. Despite this reality, President Xi welcomed Putin for a two-day Beijing summit of his own four days after President Trump’s departure. The two signed a 47-page “multipolar world” joint declaration and approximately 40 intergovernmental documents including progress around the “Power of Siberia 2” pipeline discussions. The China/Iran/Russia axis remains intact for now.
NATO
Congressional and media criticism was swift following the Pentagon’s announcement that it would be reducing U.S. Brigade Combat Teams in Europe from four to three. On Friday, President Trump rescinded the Pentagon’s withdrawal of 4,000 troops from Poland citing his support for MAGA-friendly Polish President Karol Nawrocki. NATO Secretary-General Mark Rutte welcomed the reversal and confirmed that NATO members are informally considering a Hormuz deployment if the Strait is not reopened by early July.
Separately, German Chancellor Friedrich Merz told Swedish Prime Minister Ulf Kristersson that the main issue confronting NATO is a “unity of purpose,” not U.S. troop numbers. Adding to the Trump Administration’s presence in Europe was Secretary of State Marco Rubio who attended the NATO Foreign Ministers Meeting in Helsingborg on Friday and is now in India for a Quad foreign ministers’ meeting.
Congressional Outlook
The Senate voted for the seventh time last week to impose its own check on the President’s Iran war powers, failing again, but increasing Republican support to three GOP Senators: Susan Collins (ME), Rand Paul (KY), and Lisa Murkowski (AK). The war is estimated to have cost over $30 billion to date, though no official accounting has been made by the Administration nor has the Office of Management and Budget (OMB) signaled when it might formally submit a war supplemental funding request. House Appropriations Committee Chairman Tom Cole (OK) asserted the Pentagon will run out of money by “probably August,” though the Navy has separately warned that it could be as soon as July. Senator Todd Young (IN) opined that the Administration may not even make a request, saying: “I don’t know that there’s gonna be one.”
CHINA
President Trump’s trip to Beijing over a week ago was met with a collective media shrug. The White House readout confirmed deliverables of 200 Boeing aircraft, $17 billion per year in agricultural purchases for 2026–2028, beef market access restored for 400+ U.S. facilities, poultry imports resumed, creation of a “Board of Trade” and a “Board of Investment,” and a commitment to address rare earth access and processing equipment restrictions. In addition, both President Trump and President Xi agreed that Iran should not be allowed to have a nuclear weapon. The two also called for reopening the Strait of Hormuz without the imposition of tolls and confirmed that North Korean denuclearization was a shared goal of the U.S. and China.
President Xi called the summit’s outcome “constructive strategic stability,” a deliberate reformulation of the bilateral away from that of a “strategic rivalry.” Chinese Foreign Minister Wang Yi’s Xinhua summary included “expanding two-way trade within the framework of reciprocal tariff reduction,” implying the new Board of Trade will seek to produce mutual tariff reduction. Here, there appears to finally be agreement on the tariff numbers. China’s Commerce Ministry publicly stated that tariffs should not “exceed the level stipulated” at APEC last October. This differs from previous CCP assertions that have attempted to return U.S. tariffs to pre-Liberation Day levels. Treasury Secretary Scott Bessent quickly agreed, saying China would likely accept the restoration of IEEPA-level tariff rates so long as they do not go higher.
Taiwan, Japan, and Beyond
Perhaps the most covered aspect of the Beijing summit was the Taiwan question. Commentators jumped on news of Trump and Xi discussing Taiwan as affirmation of a change in U.S. policy in light of the President admitting that the arms package was a helpful “negotiating chip” with the Chinese. Further evidence framed the media narrative in the form of Acting Navy Secretary Hung Cao’s testimony before the Senate Appropriations Defense Subcommittee in which he announced that the $14 billion sale had been paused “to ensure adequate munitions remain available for Operation Epic Fury.” Cao’s rationale of munitions conservation was in conflict with previous remarks by Secretary of War Pete Hegseth who said the U.S. military faces no such constraints.
But the reality is much less clear than the press asserts, and potentially the exact opposite. A change in U.S. policy towards Taiwan is highly unlikely. Beijing seems to recognize as much and has subsequently blocked Under Secretary of War for Policy Elbridge Colby’s proposed visit to China absent clarity on the arms package. But more telling is the U.S. relationship with Japan, which has become extraordinarily close with the ascension of conservative Prime Minister Sanae Takaichi.
Japanese media outlet Kyodo News reports that President Xi directly targeted Takaichi during his meetings with Trump, condemning her defense policies and military buildup. Xi also attacked Taiwan President Lai Ching-te, pressuring President Trump to break with both leaders. Sources confirmed that Trump instead defended Takaichi in the meetings as a “great leader” and signaled U.S. support for Japan’s security. Moreover, the President called Takaichi from Air Force One after leaving Beijing to debrief her on the conversations and is also entertaining a call with Taiwan’s president, which would be a first for a sitting U.S. president since the adoption of the “One China” policy in 1979. Moreover, Trump often refers to Lai Ching-te as “President” and even called him as President-elect in December of 2016.
Moreover, the media framing of the Taiwan question belies various leverage points the U.S. retains beyond just an arms package, including the growing economic disadvantages that are inherent to CCP governance. China has the second highest debt-to-GDP ratio in the world, roughly 40% higher than the U.S. China’s ratio rose by 10% in 2023, 11% in 2024, and 12% last year—a rapid pace that shows no signs of reversal. Meanwhile, U.S./China trade fell $49 billion in Q1 2026 vs Q1 2025. Taiwan’s, however, rose by $39 billion with the U.S. and Vietnam’s by $18 billion. Chinese overcapacity cannot be self-consumed as its struggling housing market has demonstrated.
Markets beyond that of the U.S. are taking an increasingly aggressive posture to the CCP. On Friday, four of the European Union’s largest economies—France, Italy, the Netherlands, and Spain—pressed for tougher trade measures against a surge of exports and “the rise of unfair trade practices,” presumably targeting China though not directly namely the PRC. A joint paper, issued along with Lithuania, ahead of the European Commission’s Friday meeting proposed quicker tools to impose higher tariffs on imports and fight transshipments. French President Emmanuel Macron also suggested authorizing a trade tool similar to that of USTR’s Section 301 investigatory process.
Lastly, the media applies the lessons of Ukraine’s defense to Iran’s tactics against the U.S. military campaign, but seemingly ignores those same lessons when analyzing the Taiwan question. If outmatched nation states deploying asymmetric drone warfare is the next phase of kinetic geopolitics, it must also apply to Taiwan.
AI Race
On the same day Nvidia CEO Jensen Huang arrived with President Trump in China, Beijing banned Nvidia’s RTX 5090D V2 gaming chip, designed specifically to comply with U.S. export controls. Beijing has previously blocked the H200 chip that the Commerce Department approved, despite congressional pushback. Congress’s opposition to advanced chip exports is seemingly shared by the CCP. The central government is determined to prop up its own domestic industry to combat U.S. global advancement. In fact, Huawei’s AI chip sales are surging at least 60%. While Huang believes that “over time, the market will open” the evidence shows otherwise.
TRADE UPDATE
The Administration’s appeal of the Court of International Trade (CIT) ruling against President Trump’s use of Section 122 to impose a 10% global tariff resulted in a short-term stay granted by the Court of Appeals for the Federal Circuit. Meanwhile, over $35 billion in IEEPA tariff refunds have been processed across 8 million entries, demonstrating less opposition from the Administration than previously estimated.
Last week’s biggest trade news came via the European Parliament which provisionally ratified the U.S. Agreement on Reciprocal Trade (ART) over a month ahead of President Trump’s July 4 deadline. EU Trade Commissioner Maro¹ ©efèoviè said that “despite turbulence, the deal holds.” The provisional deal includes safeguard clauses, a steel and aluminum derivatives suspension mechanism, and a 2029 sunset clause—a friction point that USTR Ambassador Jamieson Greer asserts the U.S. “didn’t agree to.”
In a sign that the U.S. tariff regime is having its intended effect, Jaguar Land Rover announced last week that it is in early-stage talks to produce vehicles in the U.S. with Stellantis. The reshoring ultimatum of the Administration, particularly with respect to the domestic auto industry, is indeed producing early signs of behavioral change in foreign automakers. These issues and continued U.S. domestic investment will likely be at the forefront of talks at the G20 Trade Ministerial to be hosted by USTR Greer in Milwaukee, Wisconsin September 30–October 1.
USMCA
The scheduled May 25 formal USMCA Joint Review negotiating round between the U.S. and Mexico arrives this week with security concerns again in the headlines. The Sinaloa Cartel is in open civil war with the Chapitos appearing to be losing a succession struggle that the Wall Street Journal described as “like a Shakespearean drama.” The ongoing cartel upheaval led Secretary of Homeland Security Markwayne Mullin to visit Mexico this past week to discuss security. In response, President Claudia Sheinbaum is pushing a planned 2027 judicial election to 2028 in order to reform the requirements for candidates amid criticism of recent rulings.
Though high by U.S. standards, Mexican Sheinbaum’s approval rating has dropped to a low of 51% and Mexico’s Q1 GDP contracted 0.8%. Both Mexican sovereignty and a lack of growth that could be further curtailed by adverse USMCA negotiations are acute pressure points for Sheinbaum and her government as she seeks to manage the U.S. relationship. The EU-Mexico summit in Mexico City on May 22 demonstrates a path for Sheinbaum to offset any concessions made to the U.S. side. Indeed, European Council President António Costa and Commission President Ursula von der Leyen met with Sheinbaum in the hopes of increasing European market access to the Mexican economy.
North of the border, the relationship with the U.S. continues to sour as Under Secretary Colby announced the pause of the Permanent Joint Board on Defense. Established in 1940 and predating NATO by nine years, Colby tied the Joint Board to a failure by the Canadians to “make credible progress on its defense commitments.” Seeking to appease both security and economic concerns, Prime Minister Mark Carney said Canada “remains open to deeper integration, including options for ‘Fortress North America’ in selected sectors.”
On USMCA specifically, Deputy USTR Jeffrey Goettman said last week that a bilateral agreement with Canada should include “unified tariff borders” on steel and other key industries to combat foreign dumping and overcapacity throughout the continent. The bilateral architecture that the Administration prefers, however, remains contested both on the Canadian side and amongst U.S. automakers. This week, seven auto industry groups jointly urged USTR Ambassador Greer to retain USMCA’s trilateral structure.
Senior House Ways and Means Committee Member Darin LaHood (IL) pointed to additional irritants with Canada, including dairy, biotechnology, and crop insurance. According to LaHood, “Allowing our farmers to compete fairly in these specific areas are some of the trade irritant areas that I’ve asked for Ambassador Greer to look at.” Adding to the list were new rules issues by the Canadian Radio-television and Telecommunications Commission (CRTC) ordering global streaming companies to spend 15% of Canadian revenue on local TV. The move was immediately met with criticism from the Ways and Means majority, which signaled it would move legislation requiring the launch of a new Section 301 investigation over the Canadian policy.
Facing its own internal domestic political pressures, Canada continues to deal with the Alberta separatist movement. Alberta Premier Danielle Smith announced a nonbinding public vote on October 19 on whether to pursue a separation referendum, bypassing a court ruling that blocked an earlier petition. Polls show separatism is a minority view, however, and the risk of Carney losing Alberta’s oil reserves and crude export revenue remains low.
DONROE DOCTRINE
The Donroe Doctrine is reaching its highest operational tempo. This week, Under Secretary of State Jacob Helberg visited Guyana, Panama, Costa Rica, the Philippines, and Singapore to advance energy security, critical minerals, and the Pax Silica Economic Security Zone, an AI-native industrial hub inside New Clark City in the Philippines. Elsewhere, Assistant Secretary Caleb Orr completed a five-day diplomacy mission to El Salvador and Honduras. But the week’s most watched travel was that of CIA Director John Ratcliffe who met with Cuban officials in Havana to deliver a message of “fundamental changes or else.” With the USS Nimitz arriving in the Caribbean last week and DOJ’s indictment of Raul Castro, attention is focused on whether the U.S. will execute its Venezuela playbook over the communist regime of Cuba and secondly, how the rest of Latin America will respond.
What’s at stake is a Western Hemisphere strategy of self-sufficiency, immune to the economic and energy shock that the Iran war has brought to the forefront. The Administration’s theory of the case can be seen in the data. Brazilian local bonds returned 7.3% in dollar terms in Q1; Colombia 4.2%. Meanwhile, Thailand lost 7.2% and India lost 5.9%. The doctrine seeks to advance energy, mining, security, and institutional stability—the Cuba governance question and Brazilian resistance remain the most visible obstacles.
Argentina
President Javier Milei’s approval has dropped from the mid-40s in February to the mid-30s. The political reality for Milei is in stark contrast to the economy’s forward progress. Vaca Muerta output hit a record 550,881 bpd and Argentina’s trade surplus now stands at $2.5 billion. Peter Thiel’s recent purchase of a $12 million Buenos Aires mansion is a signal of foreign capital confirming Argentina’s economic potential. The question, however, is whether Milei can weather the domestic political backlash of rising prices long enough to see his economic plan to fruition.
Brazil
President Luiz Inácio Lula da Silva’s recent visit to the White House established a 30-day ministerial framework, leading to a follow-up virtual meeting last week between Brazil Industry Minister Márcio Fernando Elias Rosa and USTR Greer to discuss ongoing Section 301 investigations. Also meeting last week were Brazil Finance Minister Dario Durigan and Treasury Secretary Bessent.
The opportunity for robust U.S.-Brazil economic cooperation is immense as evidenced by the USA Rare Earth acquisition of the Serra Verde Group. Like so many other Latin countries, the upcoming national elections will likely influence the direction of further coordination between the two countries. The Flávio Bolsonaro-Banco Master scandal has materially changed the October election calculus. A Datafolha survey published on Friday shows Lula now leading Bolsonaro 47% to 43% in a hypothetical runoff, a 4-point deficit for the right-aligned opposition against earlier statistical ties. Government allies are pushing Senate ethics proceedings to suspend Bolsonaro’s political rights for eight years. For Lula, the scandal provides an opportunity to offset the political drag of inflation. Brazil’s Finance Ministry raised its inflation forecast to 4.5% by December. Ultimately, the October elections will dictate Brazil’s path. Last year, Brazil was the number one recipient of Chinese foreign direct investment globally. That trend would likely continue under a Lula win.
Bolivia
More than three weeks of anti-government blockades are choking off food, fuel, and medicine supply in Bolivia’s administrative capital, La Paz, threatening to bring economic activity to a halt. The national labor union, the La Paz farmers federation, and supporters of former President Evo Morales are demanding the resignation of President Rodrigo Paz, an ally of President Trump who took office in November. The opposition accuses Paz of failing to fix the economy and favoring elite business interests. Paz is among the right-aligned Latin American leaders that the Administration seeks to support, but he is already under domestic pressure within just his first six months in office as the Iran war’s commodity price transmission is compounding Bolivia’s domestic economic pressures. Paradoxically, the Doctrine seeks to insulate the Western Hemisphere, but the Administration’s military campaign against Iran threatens it durability before it even has a chance to take roots.
Colombia
Colombians head to the polls this weekend to elect a new president. Leftist senator Iván Cepeda has been the leading candidate to date and the anointed successor to Gustavo Petro’s governmental policies. But Cepeda’s lead has vanished heading into the weekend and criminal defense attorney Abelardo “The Tiger” De la Espriella is surging. An outsider who started his own party, the hard-right De la Espriella has a 56% chance of winning the election according to Polymarket.
Similar to El Salvador’s Nayib Bukele, De la Espriella is pushing an anti-crime agenda, as well as invoking the military to defeat communist Guerillas and narco-terrorist groups that have created tension with neighboring Ecuador. Also aligning with Argentina’s Javier Milei, De la Espriella seeks to cut state spending dramatically, as well as enact major tax cuts and deregulation. De la Espriella is not alone on the right as Senator Paloma Valencia, who is backed by former president Álvaro Uribe, is also running and strikes a more moderate tone. Both conservative candidates support strengthening ties with Washington and resisting Chinese infrastructure investments. At this point, a June run-off appears most likely. The outcome will have implications for both the Donroe Doctrine and ongoing military tensions with U.S.-aligned Ecuador.
Cuba
Last week, CIA Director John Ratcliffe flew to Havana for meetings with Raúl Guillermo “Raulito” Rodríguez Castro, Interior Minister Lázaro Álvarez Casas, and the head of Cuban intelligence as the regime simultaneously released political prisoner Sissi Abascal Zamora. The U.S. State Department offered $100 million in immediate aid—via the Catholic Church—but contingent on meaningful reform. The aid is meant to quell the humanitarian crisis while bypassing Grupo de Administración Empresarial S.A. (Gaesa), the military conglomerate controlling approximately 40% of Cuba’s GDP.
Following Ratcliffe’s visit, the Justice Department unsealed a federal indictment charging former President Raúl Castro with conspiracy to kill U.S. nationals and four counts of murder in connection with Cuba’s 1996 shootdown of Brothers to the Rescue aircraft. The day after the indictment, Trump opined on the prospect of U.S. military intervention, saying “it looks like I’ll be the one that does it.” Pressing the case for military intervention, U.S. intelligence reported that Cuba has acquired more than 300 military drones from Russia and Iran since 2023.
Secretary of State Marco Rubio, who is leading the U.S. Cuba strategy, is expanding pressure to the heart of the Cuban regime’s economic engine—Gaesa. According to Rubio, “Cuba is not controlled by any ‘revolution.’ Cuba is controlled by Gaesa.” The Miami Herald reported that Gaesa, which controls $18 billion in current assets, has simultaneously cut healthcare and education spending. Gaesa has now been designated under secondary sanctions and the Administration has given foreign companies until June 5 to exit the country. Sherritt International has already announced its exit and Spanish hoteliers Meliá and Iberostar are expected to follow. On Thursday, U.S. Immigration and Customs Enforcement (ICE) arrested Adys Lastres Morera, the sister of Ania Guillermina Lastres Morera, executive president of Gaesa. The arrest followed Rubio cancelling Morera’s permanent residency status earlier in the week given her aid to “Havana’s communist regime.”
Venezuela
Reporting by the Wall Street Journal captures the posture of the White House towards interim leader Delcy Rodríguez: “compliant” and “open for business.” Indeed, Rodríguez has successfully positioned herself as indispensable to the Administration’s Venezuela strategy and broader Donroe Doctrine. Once a hardline socialist, she has been eager to host a steady stream of American investors and diplomats and quick to praise President Trump. Last week, Rodríguez told a U.S. delegation: “Please tell President Trump, who is a man of action, that here too there are men and women of action. And we have given our word to build solid foundations for a long-term relationship.”
Rodríguez’s shift has produced both money government and legitimacy for her government, allowing her to consolidate power and push democratic elections further out without reproach from the U.S. side. Enrique Márquez, a former political prisoner whom Trump invited to the State of the Union address, put it bluntly: “I don’t see any elections in the short term, namely because I see no will from the top two actors: the U.S. and the Delcy government.”
Investment and stability are the first priorities of the Trump Administration, prior to pushing for new elections. On the investment front, the pace is picking up. The New York Times reports on advanced negotiations with ExxonMobil to acquire oil production rights covering up to six fields across different regions of the country. This follows Chevron’s April expansion of its Venezuelan operations and demonstrates what a licensed, on-the-ground U.S. major can achieve.
Despite renewed investment, the resumption of commercial flights from Miami to Caracas, the reopening of the U.S. embassy, and at least a $4 billion inflow helping to shore up the money supply, signs are emerging that Venezuelans are growing impatient. Rodríguez’s approval rating stands at roughly 30% as the country continues to suffer from hyperinflation, high unemployment, and power outages. While 92% of Venezuelans were thankful of Trump’s Maduro capture in January, Trump’s numbers are having fallen to the 40s with Venezuelans. Should the unrest grow, we would expect to hear renewed calls from the Trump Administration for Rodríguez to announce an election timeline.
ECONOMIC OUTLOOK
On Friday, the S&P 500 notched its eighth consecutive week of gains, its longest streak since 2023 and the Dow Jones Industrial Average hit a record close for the second day in a row. Stocks are so high that the S&P 500 is at a valuation of 40.8, as measured by its cyclically adjusted price/earnings ratio. The metric, popularized by Yale University economist Robert Shiller, has only been above 40 once before in the 145 years of data: the peak of the dot-com bubble in early 2000.
On the other hand, the 30-year Treasury yield hit 5.20%, a level last seen on the eve of the 2008 global financial crisis. The 10-year yield rose 12 basis points to 4.60%, its biggest weekly jump since President Trump’s declaration of tariff “Liberation Day” in April of last year. The bond market volatility is being felt globally: Japan’s 30-year note hit a record high; the German bund reached a 15-year high; and UK gilt yields remain at a 28-year high.
Bloomberg MacroScope’s Simon White noted that investors are both pricing record equity allocation (the largest in the Bank of America Fund Manager Survey’s 25-year history) while also signaling their highest inflation expectations since the COVID pandemic. White argues that equities are not the inflation hedge they are commonly taken to be; the 1970s inflation decade destroyed real equity returns even as nominal prices rose. In short, the market’s signals are incompatible.
Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University, identifies three scenarios to explain the disconnect: 1) stock prices may be misreading the fundamentals that consumers clearly feel; 2) stocks could rightly be looking through the war and consumers’ inflation worries and towards inevitable future growth; and/or 3) the AI revolution best explains equity exuberance and consumer anxiety. In other words, “The stock market on the moon and households in increasing gloom are reflecting on the same thing.”
But there is another structural point worth adding as told by The Economist: “America’s outperformance began decades ago, but in the 2020s it has become vast. And it is likely to last. The latest IMF forecasts show American growth besting the rest all the way to 2030 and beyond.” The core U.S. advantage, and perhaps the exuberance that equity trades are accounting for, are all traits the Donroe Doctrine seeks to make permanent: geographic security, abundant natural resources, and as The Economist adds, “the fiscal space that comes from issuing the world’s safe asset.”
All of this leads to a startling fact: the value of equities held by U.S. households ($57.7 trillion) is now more than the total value of real estate by $9.8 trillion. This 20% gap is the widest on record.
Economic Data
The Consumer Price Index (CPI) rose 3.8% in April, above forecast, and the Producer Price Index (PPI) rose 6.0% annually, the highest since December 2022. Services drove nearly 60% of the monthly increase. The Personal Consumption Expenditures (PCE) deflator stood at 3.5% in March, the highest in nearly three years. April import prices advanced 1.9% annually and export prices 8.8%, the largest increase since data collection began.
Conversely, BLS reported 115,000 jobs added in April, more than double the 55,000 consensus. Q1 2026 GDP came in at 2.0% annualized, however, below the 2.4% consensus. South of the border, Mexico’s economy contracted 0.8% in Q1 2026 quarter-over-quarter, its worst first-quarter result since 2020.
The May S&P Global flash Purchasing Managers’ Index (PMI) data was released across seven major economies: Eurozone composite PMI contracted for the first time in almost a year and a half; U.S. services new business intakes fell for the first time in two years; and Japan’s private sector growth slipped to a five-month low. Germany’s unemployment topped 3 million for the first time in 15 years. UK business investment grew 0.7% in Q1 against the U.S.’s 17.2%.
April U.S. housing starts came in at an annualized 1.5 million, the highest since December 2024. Building permits fell 10.8%, however, signaling builders racing to complete inventory while pulling back on future authorizations under tariff and fuel pressures.
The dueling data feeds into the University of Michigan’s final May consumer sentiment reading, which plunged to an all-time low of 44.8, a 10% drop from April and below estimates. The reading is the lowest of the gauge’s 74-year history. Without being specifically asked, 57% of respondents said high prices are taking a bite out of their finances. Year-ahead inflation expectations stand at 4.5% and long-run expectations are at 3.4%. The Gallup Economic Confidence Index similarly fell, dropping to -45 in May, its lowest level since October of 2022. The share of Americans who say economic conditions are outright poor has ticked up to 49% and the percentage of Americans citing the economy or cost of living/inflation as the country’s biggest problem is now at 28% combined.
Inflection Points
June will play host to a series of events that could very well impact global economics. On June 15, President Trump will attend the G7 leaders’ summit in Évian, France, with global energy and AI security high on his agenda.
Two days later, Federal Reserve Chair Kevin Warsh will convene his first FOMC meeting with numerous committee members inclined towards rate hikes. FOMC April minutes confirmed “many” officials called for the Fed to drop its easing bias and signal its next move could be a rate increase. Rate cuts in 2026 are “essentially off the table” per Ed Yardeni. DoubleLine Capital CEO Jeffrey Gundlach: “It’s just not possible to cut interest rates when the two-year Treasury is almost 50 basis points higher than the Fed funds rate.” Though global central banks have nearly all held firm, the Reserve Bank of Australia (RBA) hiked for the third consecutive time to 4.35%.
Finally, the Supreme Court is due to issue its ruling by the end of the month on whether the President can remove Federal Reserve Governor Lisa Cook. A ruling permitting presidential removal of governors at will would be the most consequential challenge to Fed independence since the 1951 Federal Reserve-Treasury Accord and could lead to a purge of governors inclined towards rate hikes.
Week Ahead
- Monday: Various markets closed today for public holidays, including the U.S., France, Germany, Hong Kong, Italy, South Korea, and UK. Pope Leo XIV released his first encyclical on humanity in the age of AI.
- Tuesday: Texas primary runoff elections. The Conference Board’s U.S. consumer confidence indicator for May. UK British Retail Consortium May Shop Price Index. New Delhi to host the latest Quad meeting with the U.S., Australia, India, Japan participating.
Wednesday: Australia April CPI inflation rate data. Japan April services producer price index (PPI) inflation rate data.
Thursday: U.S. personal income and spending data for April and updated Q1 GDP estimate. Israel interest rate announcement. Canada Financial Stability Report. France April PPI inflation rate data. Germany Q1 real earnings data. Norway Q1 GDP estimate. Singapore Q1 GDP estimate and April consumer price index (CPI) inflation rate data. South Korea interest rate announcement. UK Zoopla House Price Index.
Friday: Brazil Q1 GDP estimate. Canada March/Q1 GDP estimates. France May provisional CPI inflation rate data. Germany May preliminary (CPI) and harmonized index of consumer prices (HICP) inflation rate data and April labor market statistics. UK capital issuance statistics.
Weekend: Colombian presidential election. Singapore hosts the IISS Shangri-La Dialogue, Asia’s premier defense conference.
OUTLOOK / ANALYSIS
As is the hallmark of Trump 2.0, the datapoints of the past two weeks were vast, both globally and domestically. President Trump remains in Washington to focus on a never-ending slew of complex geopolitical and domestic issues, including Iran, elevated crude, volatile bond markets, rising inflation, trade negotiations, Venezuela investment, and Cuban regime change. All the while, the physical market and the financial market are reading these facts and reaching opposite conclusions. The bond vigilante thesis coincides with the collapse in consumer sentiment, but the equity market appears to be looking through current events as short-term pain while strong U.S. structural advantages make a case for further investment optimism. The ongoing Iran negotiations, a possible military interdiction in Cuba, and the first Warsh FOMC meeting will all create forcing functions in the days and weeks ahead.
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