Recap | 04 March 2026

30 minutes ago
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US and Israel intensify strikes amid Iran's regional retaliation and expanding battlefield
Iran evaluating succession plans as US floats "someone from within" to take over
Regional confrontation and Strait of Hormuz attacks trigger cascading supply disruptions
US to raise temporary tariff rate as refunds ordered; OECD warns on debt

US equities recover after wild overnight trading losses in Asia
Fed officials offer differing rate path outlooks as global inflation fears resurface
ADP jobs report, services PMI show strength as Fed's Beige Book paints murkier picture
Crypto, prediction markets take procedural steps toward institutional integration

US flexes hemispheric influence in Venezuela, Ecuador
Iran war changes peace calculus between Russia and Ukraine
European Commission issues proposal for 'Made in EU' Industrial Accelerator Act
China sets lower growth target for 2026-2030 while vying for technological supremacy

Primaries in Texas, North Carolina, and Arkansas set stage for midterms
Damage to data centers flags risks to physical infrastructure underpinning cloud
Anthropic ban triggers discourse about military use of AI, contractor uncertainty
Global experts debate limits on autonomous weapons as AI, drone innovation race forward

EDWARD VON DER SCHMIDT

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Headlines

US and Israel intensify strikes amid Iran's regional retaliation and expanding battlefield

The US and Israel intensified their bombardment of Iran, whose retaliation extended beyond the Middle East into the vicinity of NATO member Turkey. The expanded theater included the US destroying an Iranian frigate in the Indian Ocean near Sri Lanka. At the same time, Israel pressed forward with its offensive against Hezbollah in Lebanon.

US officials communicated an uncertain timeline to achieve their stated goal of destroying Iran's ballistic missile capabilities. The administration has also declined to comment on whether the US is considering "boots on the ground" to accomplish its objectives.

In Washington, the Senate rejected a war powers resolution bill seeking to limit further military intervention absent Congressional authorization.

Sources:

Hegseth says US 'can't stop everything' that Iran fires even as he asserts air dominance (AP)
US sinks Iranian warship as Iran warns of widespread destruction in the Middle East (AP)
Israeli military orders immediate evacuations in southern Lebanon as strikes on Beirut intensify (AP)
Britain, France and Greece send air-defence forces to Cyrpus base after drone strike (Reuters; 3/3)
Trump, Rubio offer conflicting reasons for US entry into Iran war (Reuters; 3/3)
US sinks Iranian warship far from Gulf, NATO destroys Iranian missile heading for Turkey (Reuters)
Israel orders Lebanese to leave swathe of the south 'immediately' (Reuters)
Europe Rushes to Defend Cyprus as Iran War Exposes Vulnerability (Bloomberg; 3/3)
Trump Says US Doing 'Very Well' as Iran War Shakes Region (Bloomberg)
Senate Gives Green Light to Trump's Iran Attacks (WSJ)
Broadening Mideast Conflict Risks Pulling In U.S.'s NATO Allies (WSJ)
Sinking of Iranian Ship Illustrates U.S. Goal of Destroying Tehran's Navy (WSJ)

See also:

Exclusive: Defence executives plan to meet at White House as strikes on Iran diminish stockpiles (Reuters)
Syria sends thousands of troops to Lebanon border, sources say (Reuters; 3/3)
Discussions with Board of Peace 'on hold' due to Iran war, Indonesia says (Reuters)

Iran evaluating succession plans as US floats "someone from within" to take over

With the US noncommittal on whether it is actively seeking regime change, Iran's wartime leadership council is reportedly considering Mojtaba Khamenei, the son of slain Supreme Leader Ayatollah Ali Khamenei. The younger Khamenei has ties to hardliners and the Revolutionary Guard (IRGC), who have leveraged a decentralized command structure while asserting control of military operations.

President Trump has stated that the US might prefer "someone from within" to assume power, but viable opposition appears nonexistent apart from Kurdish forces in the west.

Sources:

A son of Iran's late supreme leader is a possible candidate to replace his father as war rages (AP)
Who is Mojtaba Khamenei, frontrunner to be Iran's supreme leader? (Reuters)
Iran's Revolutionary Guards take wartime lead, ensuring harder line, sources say (Reuters)
Hardline cleric Arafi joins wartime leadership as Iran juggles conflict, succession (Reuters)
U.S., Kurds discuss potential Iran military operation, sources say (Reuters)
Son of Khamenei Is Top Contender for Supreme Leader (WSJ)

Regional confrontation and Strait of Hormuz attacks trigger cascading supply disruptions

The outbreak of regional war and attacks on vessels in the Strait of Hormuz have crippled transit and shipping. Insurance costs have vaulted higher alongside the price of oil and gas with exports to Asia particularly squeezed. Swelling local storage could soon constrain near-term production.

Comment:

Extended interruptions to shipping and infrastructure in the region represent an enormous risk to global inflation and growth if crude and other energy input costs skyrocket. Driving up the cost of energy drives up the cost of anything that requires it.

Sources:

Supply chain disruptions from the Iran war could raise prices for drugs, electronics and more (AP)
Gulf shipping crisis deepens as tankers stranded for fifth day, US sinks Iranian warship (Reuters)
Exclusive: Qatar shuts gas liquefaction, will take weeks to restart, sources say (Reuters)
Oil settles at highest in over a year for second straight day as Iran crisis escalates, snarls Hormuz flows (Reuters)
Iran could disrupt the Strait of Hormuz with drones for months (Reuters)
Shipping Has Collapsed Through Vital Strait of Hormuz (Bloomberg)
Oil Storage Is Filling Fast in Middle East With Hormuz Blocked (Bloomberg)
Strait of Hormuz: The Oil Bottleneck Threatening the Global Economy (WSJ)

US to raise temporary tariff rate as refunds ordered; OECD warns on debt

Treasury Secretary Bessent indicated that the US would look to raise its temporary Section 122 tariff rate to 15% (from 10%) while it undertakes investigations related to Section 301 (unfair trade practices) and Section 232 (national security interests) levies.

Shifting tariff policy has created confusion over the implementation of trade deals reached before the landmark Supreme Court ruling and introduced new uncertainty for businesses. Meanwhile, the U.S. Court of International Trade ruled that tariff refunds must begin.

The lost tariff revenues could worsen fiscal imbalances just as the OECD has warned about government debt burdens that may be worsened by rising interest costs aggravated by inflation fears.

Sources:

Tariff-refund seekers flock to little-known US court with big-case experience (Reuters; 3/3)
Last year, small US firms faced notable tariff price pressures, Fed report finds (Reuters; 3/3)
US likely to raise temporary global tariff rate to 15% this week, Bessent says (Reuters)
EU lawmakers extend suspension of legislative work to clear EU-US trade deal (Reuters)
Bessent Says Trump's Tariff Hike to 15% Likely This Week (Bloomberg)
EU Expects Exemption From US Universal Tariff Boost to 15% (Bloomberg)
EU Keeps US Trade Deal Frozen Over Tariff Uncertainty (Bloomberg)
Judge Orders Government to Begin Refunding More Than $130 Billion in Tariffs (WSJ)

See also:

Inflation biggest risk to debt markets facing 'big stress test', OECD official says (Reuters)
OECD Sees Rising Refinancing Risk as Bond Sales Surge (WSJ)
Iran Conflict Spurs Rebound in U.S. Borrowing Costs (WSJ)

Markets & Economies

US equities recover after wild overnight trading losses in Asia

After pronounced equity selling in Asia overnight, stocks recovered on Wednesday in the wake of strong US economic data releases and after oil prices' surge relented.

Sources:

US stocks rebound after strong economic updates and an easing of oil prices (AP)
US stocks close up on Iran diplomacy hopes; tech leads rebound (Reuters)
Korean stocks record worst day, won sinks on Iran conflict (Reuters)
Stocks Rise Amid Economic Surprise as Oil Whipsaws: Markets Wrap (Bloomberg)
Korean Stocks Rebound on Chipmaker Gains After Record Selloff (Bloomberg)

Fed officials offer differing rate path outlooks as global inflation fears resurface

Against an increasingly uncertain outlook, Federal Reserve officials offered differing perspectives on the suitability of rate cuts. A subset is looking through short-term volatility toward easing later this year to accommodate tenuous employment conditions, while inflation concerns have left others more comfortable with an indefinite hold. Markets pared expectations for easing before the July meeting.

The potential for supply disruptions and an extended spike in oil prices have also rekindled latent inflation fears at the BOJ and ECB.

Separately, President Trump formally nominated Kevin Warsh to succeed Jerome Powell as Chair of the Federal Reserve Board. His candidacy will go before the Senate Banking Committee, where Senator Tillis intends to block any nominations to the Fed until the Department of Justice investigations into Powell are resolved.

Sources:

Fed's Williams says rate cuts still possible, does not address Iran war (Reuters; 3/3)
Fed's Schmid: inflation too hot, no room to be complacent (Reuters; 3/3)
Fed rate-cut doubts rise as Middle East conflict drives up energy prices (Reuters; 3/3)
Fed's Hammack backs steady interest rates, tells NYT it's too early to gauge Iran war impact (Reuters)
Fed faces new inflation, growth risks despite US energy resilience (Reuters)
Fed's Miran: Risks from Iran conflict no reason to delay continued rate cuts (Reuters)
Bank of Japan chief vows to keep raising rates with eye on Iran conflict (Reuters)
Euro zone inflation could surge on lengthy Iran war, ECB's chief economist warns (Reuters; 3/3)
ECB wary of Iran-war inflation spike after missing last 'transitory' surge (Reuters)
Exclusive: Kashkari Says Fed Can Sit Tight as War Clouds the Outlook (WSJ; 3/3)
Eurozone Inflation Rises Unexpectedly, With Further Risks on the Horizon (WSJ; 3/3)

See also:

White House formally nominates Warsh to be Federal Reserve chair (AP)
Trump sends Fed chair Warsh nomination to Senate (Reuters)
Warsh Nominated for Fed Chair, Path to Confirmation Unclear (Bloomberg)

ADP jobs report, services PMI show strength as Fed's Beige Book paints murkier picture

Concentrated private payrolls gains captured by ADP bested forecasts and services PMI gauges also pointed to domestic economic resilience.

The Fed's latest Beige Book reflected muted growth overall with consumer spending headwinds dovetailing with business outlook uncertainty and tariff cost pressures.

Sources:

Fed report says economy solid, notes disruption from immigration crackdown in Minnesota (Reuters)
US services sector hits 3-1/2-year high, risks loom from Middle East war (Reuters)
Fed's Beige Book Shows Weaker Consumer Is Weighing on Sales (Bloomberg)
US Services Activity Expands Most Since 2022 on Demand (Bloomberg)
Fed's Beige Book Sees a Stable Economy Still Facing Challenges (WSJ)
U.S. Services-Sector Activity Continued to Rise in February (WSJ)
Private Sector Hiring Solid Last Month, ADP Data Show (WSJ)

See also:

China's factory data mixed as Iran war clouds export outlook (Reuters)
China PMIs Send Mixed Signal as Markets Watch for Stimulus (WSJ; 3/3)

Crypto, prediction markets take procedural steps toward institutional integration

With the US, UK, Japan and others evaluating blockchain-based digital securities and settlement mechanisms, the SEC and CFTC submitted preliminary reports to begin work on regulatory frameworks for cryptocurrencies and prediction markets, respectively.

Kraken also became the first crypto-custodian to receive a master account authorization, which allows a bank to directly settle with other financial institutions using Fedwire, the Fed's payments system, rather than going through intermediaries.

Comment:

Testing, regulation, and integration are critical components necessary to join the broader institutional finance landscape.

Sources:

US and Britain split over crypto collaboration, sources say (Reuters)
BOJ to experiment with blockchain settlement for reserves (Reuters; 3/3)
Kraken's banking arm becomes first crypto firm to secure payments account with Fed (Reuters)
Trump Escalates Confrontation With Banks Over Crypto Agenda (Bloomberg; 3/3)
Kraken Is First Crypto Firm to Secure Fed Payment Access (Bloomberg)
Wall Street Regulators Advance Crypto, Prediction Market Plans (Bloomberg)
Kraken Becomes First Crypto Firm to Win Access to Fed's Core Payments System (WSJ)

See also:

Stablecoin use could weaken ECB's hand, hamper lenders, ECB paper finds (Reuters; 3/3)

Around the World

US flexes hemispheric influence in Venezuela, Ecuador

US Interior Secretary Burgum visited Venezuela to discuss critical minerals and other mining interests on Wednesday with Venzuela's interim president under pressure to meet ambitious reform timelines.

US Southern Command also conducted joint military exercises with Ecuador to combat drug trafficking. The White House has deemed narco-trafficking a national security threat and has been forward-leaning in Latin America.

Sources:

US interior secretary is in Venezuela to discuss critical minerals (AP)
US and Ecuador launch military operation against organized crime groups (AP)
Venezuela's mining reform coming soon, acting president says, as US official hails potential (Reuters)
Venezuela Says It Will Move Quickly to Unlock Mineral Wealth (Bloomberg)
Ecuador Deepens U.S. Military Alliance to Fight Drugs (WSJ)

See also:

Exclusive: US turns up heat on Venezuela with threat to indict new leader Delcy Rodriguez (Reuters; 3/3)
Ecuador Expels All Cuban Embassy Staff Ahead of Trump Summit (Bloomberg)

Iran war changes peace calculus between Russia and Ukraine

Absent word of whether US-brokered peace talks will go forward this week, any resolution to the Russia-Ukraine war has been complicated by the war in Iran. Spiking oil prices will presumably bolster Russian revenues - to the extent they can take advantage of them - while climbing gas prices may soften Europe's approach toward sanctions.

On the other hand, Ukraine faces the prospect of reduced air defense deliveries while its drone expertise and production become increasingly sought-after.

Sources:

Rising energy prices from the Iran war could help Russia pay for fighting in Ukraine (AP)
Putin hosts Hungary's foreign minister for energy supply talks as war in Mideast causes disruptions (AP)
Iran war could reopen EU debate over Russian gas, Norway says (Reuters; 3/3)
Russian oil exports crippled by drone attacks and severe weather, limiting gains from soaring prices (Reuters; 3/3)
Russia may halt gas supplies to Europe amid Iran energy spike, Putin says (Reuters)
Iran conflict may divert US weapons from Ukraine (Reuters)
Russia Sees War in Iran Squeezing Vital Air Defenses for Ukraine (Bloomberg; 3/3)
Putin Says Russia to Weigh Redirecting Gas Supplies Away from EU (Bloomberg)
Russia Is Big Winner as Iran War Drains Supplies That Ukraine Needs (WSJ)

See also:

Russian central bank challenges asset freeze in EU court (Reuters; 3/3)
Russia says France's plan to expand its nuclear arsenal is destabilising (Reuters)
Russia says US attacked Iran on false pretext, condemns call for Iranians to seize power (Reuters)
EU to Push Partners to Cover EUR30 Billion Aid Gap for Ukraine (Bloomberg)

European Commission issues proposal for 'Made in EU' Industrial Accelerator Act

The European Commission (EC) released its proposal for the Industrial Accelerator Act, requiring that a portion of public procurement funds and subsidies be allocated to domestic suppliers in strategic industries such as steel and electric vehicles. Eligible suppliers would include the 27-member bloc and a handful of trading partners.

The proposal must be approved by individual member countries and European Parliament.

Sources:

'Made in EU' auto rules risk backlash from friends and rivals (Reuters; 3/3)
EU proposes "Made in EU" rules for strategic sectors to curb China reliance (Reuters)
Explainer: What is in the EU's buy-European law? (Reuters)
EU Seeks to Push Member States to Back European, Low-Carbon Manufacturing (WSJ)

See also:

Brazil Congress approves EU-Mercosur deal (Reuters)

China sets lower growth target for 2026-2030 while vying for technological supremacy

The National People's Congress released its latest 5-Year-Plan for 2026-2030 in which it lowered its economic growth target to 4.5-5.0% while focusing on technology competition. China will borrow to finance growth as the country attempts to transition toward a greater reliance on domestic consumption than its current export-heavy model.

The plan also included more stern language vis-a-vis Taiwan (AP).

Sources:

China to unveil priorities for coming 5 years at major annual political meeting (AP)
China government to approve growth, policy plans amid growing US rivalry (Reuters)
China Sets Lowest Growth Target Since 1991 as Old Model Falters (Bloomberg)
China Keeps Record-High Budget Deficit Target to Spur Growth (Bloomberg)
China Signals New Era of Slower Economic Growth (WSJ)

See also:

China says it seeks communication with US but vows to hold its 'red lines' (Reuters)

Odds & Ends

Primaries in Texas, North Carolina, and Arkansas set stage for midterms

With control of Congress up for grabs in November, State Rep. James Talarico prevailed in Tuesday's Democratic primary and will face either Senator John Cornyn or Texas AG Ken Paxton in November's election for a potentially competitive Texas seat. In North Carolina, former Governor Roy Cooper will square off against Michael Whatley.

Sources:

Takeaways from the first elections of the 2026 midterm campaigns (AP)
Early primaries show incumbents are on shaky ground in midterms (AP)
Four takeaways from the first primaries of 2026 US midterm elections (Reuters; 3/3)
With Texas in Play for Democrats, Trump Says He Will Endorse Senate Candidate (WSJ)

Damage to data centers flags risks to physical infrastructure underpinning cloud

Although physical damage to Middle East data centers prompted minimal overall disruption, the events offer a reminder that the "cloud" is a collection of servers.

Source:

Iranian strikes on Amazon data centers highlight industry's vulnerability to physical disasters (AP; 3/3)

Anthropic ban triggers discourse about military use of AI, contractor uncertainty

Anthropic remained at the center of an emerging public debate concerning the appropriate degree of freedom to use AI in military applications. The supply-chain risk designation left government contractors unsure whether they could continue to use Anthropic software for unrelated work.

Sources:

OpenAI amending deal with Pentagon, CEO Altman says (Reuters; 3/3)
AI contract restrictions could threaten military missions, US official says (Reuters; 3/3)
Exclusive: Big tech group supports Anthropic in Pentagon fight as investors push to de-escalate clash over AI safeguards (Reuters)
Palantir faces challenge to remove Anthropic from Pentagon's AI software (Reuters)
Tech Groups Urge Trump to Drop Anthropic Supply-Chain Risk Label (Bloomberg)

Global experts debate limits on autonomous weapons as AI, drone innovation race forward

AI and drone warfare have raised the urgency with which many have called for guardrails on lethal autonomous weapon systems (LAWS), a subject under discussion in Geneva among leading experts.

Sources:

US debuts suicide drone in Iran after fast-tracked Pentagon procurement (Reuters; 3/3)
Progress on rules for lethal autonomous weapons urgently needed, says chair of Geneva talks (Reuters)
NATO to Shift Focus From Tanks to Drones, AI at July Summit (Bloomberg)

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Sources were published/accessed on the date of the Recap unless otherwise noted. Article headlines are subject to change and may not correspond to those given here.

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