👻 America's jumpscare for foreign investors

What’s going on here?

Wall Street looked mighty beady on the forehead and hot under the collar, after spotting fine print in the US president’s “big, beautiful” tax bill that could scare away foreign investors.

What does this mean?

Section 899 would let the government impose additional taxes on foreign investors, if their country’s tax policy is deemed “unfair” to the US. Right now, that includes Canada, the UK, France, and Australia. The measure could add an American tax obligation of up to 20 percentage points to those investors’ passive earnings in the US (things like dividends and interest from stateside investments). Unsurprisingly, that could push foreign investors – who currently hold $31 trillion in stateside assets – away from American stocks and bonds.

Why should I care?

For markets: So much for that whole “safe haven” thing.

Foreign institutional investors have long propped up American stock and bond markets, in turn bolstering the US dollar and keeping borrowing costs low. So let’s say Section 899 turns some of them off: the dollar could weaken and long-term interest rates could rise from that alone. And, of course, this is all coming at a time when the “safe haven” status of US assets is already in question.

Zooming out: Asian investors were already on their way out.

Anxious about tariffs, politics, and currency fluctuations, institutions in Japan, Taiwan, and China have already started retreating from the US. Until recently, Japan invested more money overseas than other country in the world – and while it does hold more international investments than ever before, Germany now has more. Australia’s been straying, too: the country’s biggest pension funds have been looking for safer opportunities outside of the States. So far, all those wandering eyes have found what they’re looking for in Europe and Canada – and at home, too.

What’s going on here?

US inflation cooled a bit in April, but likely not enough to warrant an intervention – divine or otherwise – from the Federal Reserve (Fed).

What does this mean?

The American central bank’s favorite inflation gauge (we all have one, right?) rose just 2.5% for the year in April. That’s down from 2.7% in March, and a bit closer to the Fed’s long-term 2% target. Meanwhile, consumer activity jumped slightly more than expected. Americans splashed out on services – things like eating out, entertainment, and healthcare – while paring back a little on buying physical goods. Investors generally cheered the data, despite the big elephant in the room. See, the full impact of the US president’s tariff spree hasn’t really hit yet – and once it does, the inflation picture could get a lot messier.

Why should I care?

Zooming in: Politics is no match for policy.

The president sat down with the Fed’s head honcho this week to tell him that interest rates need to come down, pronto. That didn’t seem to achieve anything, and it shouldn’t: the central bank isn’t supposed to participate in politics at all. So the Fed will be sticking to its regular mandate of keeping prices stable and the job market strong. If inflation does continue to cool, though, the interest rate situation will naturally be headed in that direction anyway.

The bigger picture: Japan threw a curveball.

Japanese consumers are confronting an unfamiliar problem in their neck of the woods: surging inflation. (The country has famously dealt with deflation on and off for decades.) Prices in Tokyo jumped to a two-year high this month, with food costs being the main driver. Rice – obviously an important staple – was up a whopping 90% from a year ago. Those kinds of jumps can take a huge bite out of folks’ paychecks and drag the economy down. So the Bank of Japan might be cooking up another interest rate hike, possibly as soon as July.