Weekly Research Briefing: Rounding Second

"I think the world has been dealing with so much uncertainty, since the onset of the pandemic and then all the geopolitical issues that have cropped up since then. And people have gone from, geez, it feels uncertain, I need to take a break and pause to -- I got to run my business, right? There's never going to be a time when things are fully settled, and I just have to continue to run my business, and that's really what we're seeing." – Cisco Systems CFO Richard Scott Herren

@RenMacLLC: While there have been positive trade headlines in recent weeks, plenty of damage has been done. The New York Fed's six-month capital spending plans series fell to a fresh low of -7.3 in June. Business investment outlook looks sluggish.

@KevRGordon: Defying the notion of relief coming from tariff pauses, the Empire Manufacturing Index weakened in June ... new orders back in contraction; prices paid eased while prices paid rose.

Continuing claims for the week ended May 31 rose by 54,000 to 1,956,000, surpassing forecasts and reaching their highest level since November 2021. The four-week moving average of initial claims also ticked up to its highest point since August 2023. The labor market appears to be softening.

On Wednesday morning, President Trump took a call from Brooke Rollins, his secretary of agriculture, who relayed a growing sense of alarm from the heartland.

Farmers and agriculture groups, she said, were increasingly uneasy about his immigration crackdown. Federal agents had begun to aggressively target work sites in recent weeks, with the goal of sharply bolstering the number of arrests and deportations of undocumented immigrants.

Farmers rely on immigrants to work long hours, Ms. Rollins said. She told the president that farm groups had been warning her that their employees would stop showing up to work out of fear, potentially crippling the agricultural industry…

Later on Thursday, a senior official with Immigration and Customs Enforcement, Tatum King, sent an email to regional leaders at the agency informing them of new guidance. Agents were to “hold on all work site enforcement investigations/operations on agriculture (including aquaculture and meat packing plants), restaurants and operating hotels.”

When Paula Comings, the head of currency sales for US Bancorp, talks to US importers, she increasingly hears the same message: Their foreign counterparties no longer want to be paid in dollars.

Instead, they ask for settlement in euros, Chinese renminbi, the Mexican peso and the Canadian dollar, looking to limit their exposure to further swings in the greenback.

“A lot of clients previously were reluctant because dollars were sacred in the eyes of the supplier,” Comings said. “Now the vibe from overseas vendors seems to be, ‘Just give us our currency.’”

While the dollar saw a brief boost amid the turmoil in the Middle East, the currency is still about 8% lower this year against a basket of other currencies. That followed a steep gain of 7% in the final quarter of 2024, according to a Bloomberg index. This volatility, which complicates pricing decisions and poses earnings risks, increasingly means the dollar is falling out of favor…

“The change is difficult to quantify in real time, but in markets from East Asia to Latin America, a growing number of exporters are opting to denominate contracts in euro, yuan, or even local currencies,” said Karl Schamotta, chief market strategist at cross-border payments firm Corpay in Toronto.

"The ten year bond issuance that we can do in Europe is 130, 140 basis points inside of what we can issue here in the U.S. So obviously, the cost of capital is more attractive...So, all of that is coming together for us. at this point in time, in making more investments in Europe than here in the U.S." – Realty Income Corporation CEO Sumit Roy

Blackstone Group is preparing to significantly increase its investments across Europe as the private capital group bets economic reforms will revive growth after years of US outperformance.

Stephen Schwarzman, co-founder of the $1.2tn-in-assets investment group, told the Financial Times in an interview that Blackstone was planning to invest “at least $500bn” in Europe in the coming decade, as it spots opportunities to become a major lender to companies across the continent and strike large infrastructure and private equity takeovers.

“We are seeing signs of change now in Europe,” said Schwarzman. “European leaders are generally becoming more sensitive to the fact that their growth rates over the past decade have been quite low and it’s not sustainable for them. So they are looking at putting pressure on the European Union regarding deregulation. We think Europe has the prospect of doing better than they had in the past.”…

Schwarzman said Blackstone’s growing excitement for Europe factors in a gap in valuations between European companies and their US-listed peers and falling financing costs. But it mostly hinges on a growing conviction surrounding economic reforms.

“There are valuation differences obviously between the United States and Europe that we find in the private equity and real estate areas, as well as infrastructure. But you need all of those factors,” he said, referring to economic reforms and declining interest rates. “Just cheaper prices isn’t always the right answer.”

"U.K. has one of the richest AI communities anywhere on the planet. The deepest thinkers, the best universities—Oxford, Cambridge, Imperial College. Amazing startups. I ..The U.K. is the largest AI investment area anywhere else in the world. Between these two ideas that you are rich with great computer scientists, it is a fantastic place for VCs to invest. The ecosystem is really perfect for takeoff. It is just missing one thing. It is surprising. This is the largest AI ecosystem in the world without its own infrastructure, which is the reason why we are talking about it so much." – Nvidia CEO Jensen Huang

"So, the teams are busy. In fact, I think if you look at IPO market the last couple of quarters...it's slowed down a little bit kind of post-liberation day, but it's picked back up." – Carlyle Group CFO John Redett

The number of deals worth between $1 billion and $10 billion, including debt, has jumped compared with last year. It is the relatively smaller deals—those worth less than $1 billion—that have fallen, and those account for the biggest share of transactions. The biggest deals—those worth more than $10 billion—don’t come along as often. So far this year, there have been 13 such megadeals for U.S. targets, including debt. That is down from 16 during the same time last year.

US household equity ownership – and the resulting steady demand for stocks – is a key differentiator between the US equity market and the equity markets in other regions. US households' 49% allocation to equities is followed by Japan, where households allocate 13% of their assets to equities, followed by the UK and the EU at 10%, and China at 9%.

A tiny Pentagon office had spent months investigating conspiracy theories about secret Washington UFO programs when it uncovered a shocking truth: At least one of those theories had been fueled by the Pentagon itself.

The congressionally ordered probe took investigators back to the 1980s, when an Air Force colonel visited a bar near Area 51, a top-secret site in the Nevada desert. He gave the owner photos of what might be flying saucers. The photos went up on the walls, and into the local lore went the idea that the U.S. military was secretly testing recovered alien technology.

But the colonel was on a mission—of disinformation. The photos were doctored, the now-retired officer confessed to the Pentagon investigators in 2023. The whole exercise was a ruse to protect what was really going on at Area 51: The Air Force was using the site to develop top-secret stealth fighters, viewed as a critical edge against the Soviet Union. Military leaders were worried that the programs might get exposed if locals somehow glimpsed a test flight of, say, the F-117 stealth fighter, an aircraft that truly did look out of this world. Better that they believe it came from Andromeda.