Recap | 27 February 2026

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Israel and US begin 'major combat operations in Iran'; Middle East braces for conflict
Anthropic barred by administration, designated supply chain risk by Pentagon
Pakistan announces 'open war' after Afghanistan attacks

AI stocks retreat with private credit risk weighing on banks
Markets position for higher oil prices despite supply
Interest rates ease even as wholesale price inflation surprises
Major central banks' independence under scrutiny

President Trump floats 'friendly takeover' of Cuba while US exerts regional influence
Europe presses forward with Mercosur, India trade deals
Greens prevail in Manchester election in warning for Labour

Countries contend with drone defense in new age of warfare
Reuters details critical rare earth shortages in light of China curbs
Memory chip shortages worsen with new fabrication technology on the way
Block layoffs portend AI workforce restructuring

EDWARD VON DER SCHMIDT

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Headlines

Israel and US begin 'major combat operations in Iran'; Middle East braces for conflict

Israel and the US conducted joint strikes on Iran Saturday morning after negotiators failed to make sufficient progress in Geneva. President Trump referenced Iran's refusal to abandon nuclear and long-range missile programs as the basis for "major combat operations" called "Operation Epic Fury". Military, government, and intelligence sites were targeted (AP). The attacks are expected to last for "days" (WSJ) and Iran has vowed to retaliate.

The preemptive strikes were planned for months (Reuters) and followed a multitude of embassy evacuations in the region. The intervention came after President Trump was "not happy" with Iran's determination to enrich uranium and the IAEA was unable to verify Iran's stockpiles or whether they had suspended their enrichment program. The US demanded an end to enrichment in order to preclude the possibility of Iran developing a nuclear weapon.

Secretary of State Rubio was scheduled to travel to Israel on Monday, when a round of technical negotiations mediated by Oman had been planned.

Comment:

Given President Trump's call for Iranians to "take over your government", regime change could be an objective.

Sources:

US and Israel launch an attack on Iran with tensions high over nuclear talks (AP)
Trump says he's 'not happy' with Iran talks but indicates he'll give them more time (AP)
UN nuclear watchdog says it's unable to verify whether Iran has suspended all uranium enrichment (AP)
Israel and US launch strikes on Iran, pushing Middle East into new conflict (Reuters)
IAEA report says Iran must allow inspections, points to Isfahan (Reuters)
Iran Seen Carrying Out Activity at Bombed Nuclear Sites (Bloomberg)
Embassies Evacuate in Mideast With Trump 'Not Happy' On Iran (Bloomberg)
Second U.S. Aircraft Carrier Approaches Middle East as Nuclear Deal With Iran Remains Elusive (WSJ)
U.S., Israel Strike Iran: Live Updates (WSJ)

See also:

Tensions between son of Iran's last shah and Kurdish dissidents show cracks in Iranian opposition (AP)

Anthropic barred by administration, designated supply chain risk by Pentagon

The White House barred federal agencies and contractors from using Anthropic PBC software on Friday with six months to fully implement the ban. The Department of Defense also categorized the AI company known for its 'Claude' models as a supply chain risk, a designation normally reserved for adversaries and that the company intends to challenge in court.

The measures were imposed after Anthropic refused to agree to provide an unrestricted version of its software, flexibility that the Pentagon said it required to pursue "all lawful purposes". The company had cited concerns about potential for domestic surveillance and autonomous warfare applications.

Anthropic was previously the only provider authorized for the DoD's classified cloud networks and its software has been used extensively throughout the federal and defense complexes. OpenAI announced that it reached an agreement with the Pentagon that addressed Anthropic's concerns, but the specific contractual language was not clear.

Comment:

This represents an extraordinary public intervention in a private company's operations. In the absence of resolution, forcing the removal of widely-used AI software embedded into numerous critical processes could be a disruptive setback.

Sources:

Trump orders US agencies to stop using Anthropic technology in clash over AI safety (AP)
Anthropic CEO says it 'cannot in good conscience accede' to Pentagon's demands for AI use (AP; 2/26)
Anthropic cannot accede to Pentagon's request in AI safeguards dispute, CEO says (Reuters; 2/26)
Trump directs US agencies to toss Anthropic's AI as Pentagon calls startup a supply risk (Reuters)
US Bars Anthropic Products From Agencies, Contractors (Bloomberg)
Trump Administration Shuns Anthropic, Embraces OpenAI in Clash Over Guardrails (WSJ)

See also:

Exclusive: Government Agencies Raise Alarm About Use of Elon Musk's Grok Chatbot (WSJ)
Exclusive: Altman Says OpenAI Is Working on Pentagon Deal Amid Anthropic Standoff (WSJ)

Pakistan announces 'open war' after Afghanistan attacks

Clashes along a disputed border between Afghanistan and Pakistan may have evolved into "open war" according to the latter's defense minister.

Afghanistan retaliated on Thursday for prior Pakistani airstrikes as an October ceasefire dissolved. Pakistan has accused Afghanistan of supporting terrorists, which Kabul denies. Taliban leadership reportedly expressed a readiness to negotiate.

Note that both countries border Iran. Afghanistan has also improved its ties with India.

Sources:

Pakistan is in 'open war' with Afghanistan after latest strikes, defense minister says (AP)
What to know about the latest fighting between Afghanistan and Pakistan (AP)
Pakistan's Afghan salvo risks turning 'open war' into a lasting crisis (Reuters)
Afghan Taliban open to talks after Pakistan bombs Kabul, Kandahar (Reuters)
Pakistan Calls Conflict With Afghanistan 'Open War' After Cross-Border Attacks (WSJ)

Markets & Economies

AI stocks retreat with private credit risk weighing on banks

Nvidia and other chipmakers led an AI-pullback on Thursday that continued into the end of the week. The collapse of a mortgage servicer in the UK added to private credit fears and weighed on the banking sector in particular.

Lending to software companies has compounded these concerns in light of portfolio holdings' perceived exposure to AI disruption.

Sources:

US stocks sink and oil prices rise as worries about AI, inflation and possible war hit Wall Street (AP)
Wall St notches monthly declines in combined AI, tariff, geopolitical uncertainty (Reuters)
Wall Street hit by UK mortgage lender collapse, raising fears of more credit 'cockroaches' (Reuters)
Blue Owl turmoil adds to strain in $2 trillion US private credit sector (Reuters)
Stocks Fall on Credit, War Jitters as Oil Surges: Markets Wrap (Bloomberg)
Bank Shares Walloped by More AI and 'Cockroach' Credit Woes (Bloomberg)
New Credit Blowup in London Has Wall Street Chasing Billions (Bloomberg)
Bank Stocks Suffer Another Plunge on Credit and AI Fears (WSJ)

See also:

US Leveraged Loans Lose the Most Since 2022 on AI-Driven Fears (Bloomberg)
Bitcoin Tumbles Toward $65,000 as AI Fears Rattle Markets (Bloomberg)
AI Gave Investors a Glimpse of the Future This Month. And They Sold Their Stocks (WSJ)

Markets position for higher oil prices despite supply

Oil rallied on Friday absent expectations for a near-term deal between the US and Iran. Anticipated supply increases owing to precautionary output increases and OPEC+ hikes might present headwinds, but positioning and regional war risk pushing crude higher.

Sources:

Oil prices rise more than 2% as US and Iran extend talks (Reuters)
UAE and Saudi boost oil exports as US-Iran tensions mount, sources say (Reuters)
Analysts hike oil outlook on geopolitical risks, oversupply concerns limit upside (Reuters)
Hedge Funds Hike Bullish Oil Bets to 22-Month High on Iran Risks (Bloomberg)
OPEC+ Expected to Resume Output Hikes at Sunday Meeting (WSJ)

Interest rates ease even as wholesale price inflation surprises

The January Producer Price Index (PPI) came in solidly above consensus forecasts, with wholesale prices posting an annual rise of 2.9%. The core gauge jumped 0.8% from December and 3.6% annually. Pickups in services components were attributed to retailer tariff passthrough.

Notwithstanding the inflation surprise, intermediate (~7 to 10-year) interest rates have continued to fall as risk assets falter. Conventional 30-year mortgage rates fell below 6% for the first time since 2022, but supply remains a major constraint to home ownership.

Steady jobless claims data did not suggest any acute spike in layoffs amid a slow hiring environment.

Sources:

US wholesale prices arrive hotter than expected, up 0.5% from December and 2.9% from a year ago (AP)
US producer prices increase strongly in January (Reuters)
US weekly jobless claims rise slightly; unemployment rate likely unchanged in February (Reuters; 2/26)
Bonds Cap February Rally With Yields at Lowest Since 2022 (Bloomberg)

See also:

US mortgage rate dips below 6% but economists don't expect a housing boom (Reuters; 2/26)
Mortgage Rates Fall Below 6% for the First Time Since 2022 (WSJ; 2/26)

Major central banks' independence under scrutiny

Reuters highlighted the increased scrutiny of central bank independence. The White House has publicly pressured the Fed to lower interest rates, ECB succession has taken on political undertones, and Japan's prime minister recently nominated two members to the Bank of Japan who are believed to favor less restrictive monetary policy.

Comment:

It's worth noting that Governor Miran's expectation for 100bp of easing in 2026 is much less than President Trump has demanded.

Sources:

Under siege from politics, central bankers fight back - at a cost (Reuters)
Fed chief nominee Warsh faces hurdles as clock ticks on Powell's term (Reuters)
Japan's Takaichi gets her doves in a row with BoJ board appointees (Reuters; 2/26)
Trump Tells Buyers Priced Out of Housing: 'Wait a Little Longer' (Bloomberg)
Exclusive: Federal Reserve Mounts Closed-Door Fight Against Justice Department Subpoenas (WSJ; 2/26)

See also:

Odds of early Warsh-led Fed rate cuts slide with bullish outlook (Reuters; 2/26)
Fed's Miran: Four quarter-point cuts still warranted this year, no "all clear" for job market (Reuters; 2/26)
Fed's Goolsbee forecasts several more rate cuts this year, but not soon (Reuters; 2/26)

Around the World

President Trump floats 'friendly takeover' of Cuba while US exerts influence in Latin America

With Cuba fending off systemic collapse, President Trump suggested that the country might have no choice but to accept a "friendly takeover". The president almost surely meant his comment in the corporate sense, not an invasion.

The US continues to assert its security interests in Latin America, as evidenced by port disputes in Panama and its pressure on Chile to distance itself from China.

Sources:

Trump raises the possibility of a 'friendly takeover of Cuba' coming out of talks with Havana (AP)
Cuba says it is communicating with US after fatal boat shooting but seeks more details (AP; 2/26)
Panamanian investigators remove documents from offices of company that ran canal ports (AP; 2/26)
Trump raises prospect of 'friendly takeover' of Cuba, says Rubio in talks (Reuters)
Chile denies onboard care by Chinese medical ship as US pressure mounts (Reuters)
Panama officials search CK Hutchison's local office as tensions rise (Reuters; 2/26)
Cuba and US Take Calm Approach to Investigating Deadly Boat Incident (Bloomberg)
Trump Says He Sees Possible 'Friendly Takeover of Cuba' (Bloomberg)

See also:

Exclusive: Washington presses Syria to shift from Chinese telecom systems (Reuters; 2/26)

Europe presses forward with Mercosur, India trade deals

European Commission President von der Leyen announced that the EU would "provisionally implement" its trade deal with Mercosur countries over the objections of France and others. The EC elected not to wait for approval from the European Parliament, which referred the deal to the European Court of Justice for review.

Separately, the EU and India agreed to "Most Favored Nation" status as part of their recent accord, which guarantees terms no worse than those with any other trading partner.

The push to finalize and implement these deals comes as European and other countries grapple with the pronounced shift toward protectionism.

Sources:

The EU will 'provisionally implement' a trade deal with South American bloc Mercosur (AP)
EU fast-tracks trade deal with South America's Mercosur, to France's chagrin (Reuters)
India and EU lock in WTO guardrails, digital trade rules in draft trade deal (Reuters)
EU to Implement Long-Awaited Mercosur Trade Deal (WSJ)

See also:

Germany's Merz says challenges remain as he concludes inaugural China trip (Reuters; 2/26)
India focused on getting best trade deal with US, Indian trade minister says (Reuters)
Trade Remains 'Challenging' for Eurozone Amid Volatile Policy, Says ECB's Lagarde (WSJ; 2/26)

Greens prevail in Manchester election in warning for Labour

In Gorton and Denton, the Green party finished well ahead of Reform and Labour, who lost the seat in Greater Manchester that it had held for nearly a century.

The result augurs poorly for UK PM Starmer ahead of local elections in May.

Sources:

Keir Starmer suffers a blow as the Green Party snatches a Parliament seat from Labor (AP; 2/26)
A UK election win for the Green Party is a nightmare for Labour and Starmer. Here are the takeaways (AP)
U.K. Prime Minister Starmer Suffers Another Setback With Local Election (WSJ)

Odds & Ends

Countries contend with drone defense in new age of warfare

With their dominant presence in Russia's invasion of Ukraine, drones have taken center stage in a world moving toward unmanned and autonomous warfare. Countries are seeking to bolster drone defenses to reconcile this new paradigm.

Sources:

US military used laser to take down Border Protection drone, lawmakers say (AP; 2/26)
France says drone incident near aircraft carrier would be 'provocation' if Russian link confirmed (Reuters)
Belgium to deploy air-defense system in Antwerp Port to counter drone threats (Reuters; 2/26)
Romania scrambles fighter jets after drone breaches its airspace (Reuters; 2/26)
Germany expands military powers to fight drones (Reuters; 2/26)
Pentagon Laser Downs Customs Border Patrol Drone in Texas (Bloomberg)
White House Hosted Meeting on Recent Use of Anti-Drone Lasers (Bloomberg)

See also:

How China is masking drone flights in potential Taiwan rehearsal (Reuters)
German authorities to get more powers against foreign hackers, draft law shows (Reuters)
US, Ukraine discuss post-war reconstruction as fighting grinds on (Reuters; 2/26)
How Russia-Ukraine Peace Talks Are at an Impasse Over Territory (Bloomberg)

Reuters details critical rare earth shortages in light of China curbs

According to Reuters, severe shortages of rare earths and critical minerals have affected the aerospace and semiconductor industries. China dominates these markets and has placed export restrictions on components integral to magnets and other essential industrial inputs.

Sources:

Exclusive: Rare earth shortages worsen in US aerospace, chips despite trade truce, sources say (Reuters; 2/26)
As Trump reins in China tech curbs, Beijing's export-controls come of age (Reuters; 2/26)

See also:

US trade panel to probe impact of revoking China's permanent normal trade status (Reuters; 2/26)

Memory chip shortages worsen with new fabrication technology on the way

The International Data Corporation (IDC) projected double-digit declines in smartphone production in 2026, which would be the largest on record. Memory chip shortages owing to AI datacenter demand have led to skyrocketing prices and limited availability for mobile and consumer devices.

Separately, the world's principle purveyor of extreme ultraviolet lithography (EUV) machines achieved yield breakthroughs that could help to address future supply needs. EUVs essentially use light to etch patterns into silicon wafers and are thus an indispensable part of chip fabrication.

Sources:

Smartphone market set for biggest-ever decline in 2026 on memory price sure, IDC says (Reuters; 2/26)
Exclusive: ASML says next-gen EUV tools ready to mass-produce chips, marking key shift for AI chip production (Reuters; 2/26)

Block layoffs portend AI workforce restructuring

Jack Dorsey, CEO of Block and the founder of Twitter, announced that his company would lay off a substantial number of employees in order to adjust to AI's entry into enterprise knowledge work.

Comment:

Such downsizing at scale would represent a material, structural risk to labor markets in the absence of new industries and jobs. This could mean higher productivity at the expense of permanently higher unemployment.

Sources:

Dorsey's blunt AI warning sharpens debate over jobs and profits (Reuters)
S&P 500 Falls in Retreat From Risk as Block Cuts Spur AI Anxiety (Bloomberg)
Jack Dorsey's Block to Lay Off 40% of Its Workforce in AI Remake (WSJ; 2/26)

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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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