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Mike Dolan's notes for the week: ROI-Youth, Task Forces and AI Debt
The news flow has been relentless in the week that has passed, reflecting on the madness of the first half of 2026 as well as the 250th Anniversary of the U.S. This week's column is a little different. It's a look at a few issues, some related to the main story and others not. 1)?YOUTH BURDEN OR BOON? Many investment houses have been pondering the reasons why America is now the world's largest economy. Morgan Stanley strategist Andrew Sheets, citing Gordon Wood's book "Empire of Liberty" from 2009, which chronicles the early Republic, argued that chaos and volatility were transformed into an economic catalyst thanks to the country's openness, adaptability, and capacity for renewal following repeated crises. In 1810, approximately 70% of Americans were younger than 25 years old. The population was a fraction and life expectancy far less than today, but this figure captures a youthful vigour and youth that is hard to match. Sub-Saharan African nations such as Uganda and Niger are close behind, with 70% of their population under 25 years old. Although emigration is more prevalent than immigration in these countries and life expectancy is below world averages, can sheer youth lead to better economic prospects? Many economists disagree, arguing the world today is different than the labour-intensive economy of the early nineteenth century and that the youth dividend might not be as it was. The Centre for Economic Policy Research, co-authored by Nobel Laureate Daron Acemoglu, found that lower birthrates in the last few decades were associated with higher GDP per working-age adult growth across countries as well as stronger wage growth within U.S. commuter zones. This had no negative effect on aggregate GDP or earnings. They argue that this is a response by the technology and innovation to a shortage of young workers. They add that countries and regions with lower rates of birth show more patents for labour-saving technologies and a growing high-tech industry. It is not the overall population growth, but the decrease in the younger populations. A brave new world indeed - and another hat tip to the current market obsession. What is the advice? The focus of attention on the new Federal Reserve chair Kevin Warsh is on his reaction to the market expectation that the next move for Fed interest rates will be up. Warsh is more likely to be focusing on the "task forces" that he established last month in order to study the workings of the central bank and the conduct of monetary policies. One story in the Wall Street Journal that many may have missed was that Warsh had appointed veteran Fed staffers Daniel Covitz, and Eric Engstrom to be his key advisors. Everyone wants to know their thoughts and what they have been working on. Perhaps a guidance skeptic, like Warsh, was attracted to Engstrom’s work about the pitfalls in the Fed’s quarterly economic and interest rate projections. The pair's latest joint paper was published in February and dissected the elevated Treasury forward rates. They concluded that this outsized jump in rates for long-dated bonds was more rooted in fiscal concerns rather than inflation or fears about Fed credibility. The Fed website says Covitz is currently researching "Asset bubbles" and "Stability of Short Term Credit Markets". These are timely topics for a central banking institution that wants to keep up with the AI craze in some parts of financial world. Engstrom's work on "Stock-Bond Comovement", "Corporate Profits and Entrepreneurship" and other topics, meanwhile, shows how the big themes of this year may influence policy. 3) BROKEN CYCLE? The stock prices of big AI beneficiaries are soaring. This year, the most obvious ones were chip makers and computing equipment manufacturers. But what looks like a buoyant midyear ?for top-line stock market indexes masks the angst over AI's potential losers, mainly the software-as-a-service sector. Matthew Savino of Carlyle wrote in a recent note that one way to look at this is the rising borrowing premia?for these companies in the leveraged loans market. Software spreads are nearly twice as high as the broad index. Early in the year, they jumped by nearly 300 basis points and haven't returned since. Savino cites two points that stand out. Savino says that two points stand out. About 85% of the debt is B-minus, or below, and debt maturing between 2028 and 29 has a weighted average of 79 cents per dollar. More than half of this debt trades at less than 90. It is obvious that companies and creditors must work together to resolve these debts. This leads us to the second point. Most workouts for rolling or extending debts involve higher spreads or pay-in kind coupons, or other sweeteners in order to keep borrowers whole. These assume that the economy will recover in a cyclical fashion over time. For some firms, AI disruption can be existential. This complicates debt relationships that were previously flexible and increases anxiety among those who are most affected. Savino concluded that "in the context of secular distress, and high uncertainty regarding terminal value, time may be an enemy if financial degradation is rapid in the business at hand." It's about time to get interesting. The opinions here are those expressed by Mike Dolan, columnist at. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. 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Malaysia will spend $10 billion on fuel subsidy in 2026. PM Says
Anwar Ibrahim, the Prime Minister, said that Malaysia could spend up to 40 billion ringgit (about $9.8 'billion) this year on fuel subsidies if energy prices remain high. This would be more than double their initial budget allocation. Malaysia set aside 15 billion ringgit in its budget for 2026 for fuel subsidies. Anwar, in a written parliamentary response dated Tuesday, said that the government spent about 800 million ringgit each of the two first'months' of the year to subsidize diesel and RON95 fuel. The figure then jumped up to around 5 billion ringgit between March and April, after the start of the war with iran. * The government is focusing on protecting the people, particularly those who are most affected by rising prices and cost of living. Anwar stated that the government would continue to?monitor the fiscal position? and subsidy capacity?to ensure that financial assistance can be provided sustainably.
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Morning Bid Europe- That's a lot to digest
Wayne Cole gives us a look at what the future holds for European and global markets. The 'new quarter' in Asia has been marked by a lack of confidence, partly because the market is digesting the gains from the previous quarter and partly because the U.S./Iran talks have not progressed. Tehran has reportedly refused to meet with President Donald Trump's son in law?Jared Kushner or his envoy Steve Witkoff, who arrived for high-level talks at Doha. The Strait of Hormuz is a very difficult issue. It's unclear how to resolve it. Asian stock markets have been mixed. This follows a quarter in which the Nikkei soared 37%, while the Kospi soared 68%, and the Taiex rose 45%. These gains are dependent on the AI trade working well, but economic data is providing fundamental support. The sentiment among Japan's major manufacturers reached a level not seen since 2018. Manufacturing activity also had its best quarter in 2014 as new orders surged. South Korea's trade numbers were astounding. The country experienced the fastest growth in exports in almost 50 years, in June. Shipments of semiconductors increased by nearly 200%. South Korea is now the fourth country to have a monthly value of exports exceeding $100 billion after Germany, China, and the U.S. The Wall Street stock futures are slightly in the red following a strong session overnight, led by the usual suspects. This season, which begins the week of July 13, is expected to be a 'bonanza for earnings from these same companies. Goldman Sachs analysts note that the consensus for earnings per share is a 22% increase over a year ago. AI infrastructure stocks will contribute to nearly 60% of the S&P 500's EPS growth. Micron and Nvidia, together, are expected to account for more than 40%. Earnings will need to be high enough to counter the appeal of higher bond rates and the possibility of an increase in the cash rate. The yields on 10-year Treasury bonds?rose almost 9 basis points in a selloff on Tuesday that was not triggered by any obvious factor. Investors could be bracing themselves for a surprise tomorrow in the payroll numbers on the upside, further reducing the odds of a Federal Reserve increase. The chance of a move in September is between 67% and 88%, depending on how you calculate Fed Fund Futures. Today, Fed Chair Warsh will be speaking in Sintra. We'll see whether he adheres to his "no-forward guidance" mantra. There's also a new 40-year high for the dollar/yen, 162.82, and no signs of Japanese intervention. The yen is not falling on the crosses. Perhaps Tokyo is willing to wait. There are no major chart levels until the dollar reaches Plaza Accord level?around 240.00 yen. This is a huge gap to fill. The following are key developments that may influence the markets on Wednesday. - Fed 'Chair Kevin Warsh speaks at the ECB Forum on Central Banking, Sintra, Portugal, alongside European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, as well as Bank of Canada Governor Tiff MacKlem. - EU CPI June, EU and US Manufacturing PMIs June US ISM Manufacturing Survey and Auto Sales for June
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Sources say that Kawasaki Heavy intends to raise $1.2 Billion via new convertible bonds and shares.
According to sources with knowledge of the matter, Kawasaki Heavy Industry is preparing to issue new shares and convertible bond to fund capital expenditures. The company plans to raise 200 billion yen (US$1.23 'billion). Sources said that the company would decide the details for the issuance this week. One of the sources stated that shares and convertible bonds would be sold to primarily overseas institutional investors. The plan to raise money has not been announced earlier. Kawasaki Heavy stated in a press release that it was considering different capital strategies, including the issuance of new shares and bonds. However, nothing had been decided. Sources declined to name themselves as the information was not publicly available. Kawasaki Heavy shares were down by 7% in Tokyo, as investors worried about the possible dilution effect. Kawasaki Heavy invests in a range of areas, including gas turbines and robots used in chipmaking equipment, and in the hydrogen supply chain. This is in line with the government's plans to strengthen key sectors, as well as the nation's defences. As interest rates increase, Japanese companies are increasingly turning to convertible bonds. These bonds can be converted later into shares at a fixed price, avoiding immediate dilution. LSEG data show that eight Japanese companies raised $7 billion by issuing convertible bond as of June 17. This is the highest amount in over two decades. This year, companies are issuing convertible bonds include?Nippon Steel - the largest corporate bond issue in Japan's history - and JX Advanced Metals. A banker revealed that several more companies plan to issue convertible bonds. Growing Defense Spending Prime Minister Sanae Taichi targets?more 370 trillion yen through fiscal 2040 in 17 strategic sectors, including AI?and chips. CEO Yasuhiko Hashimo of Kawasaki Heavy has stated that this ambition offers opportunities for his company. Kawasaki Heavy has announced that it is working with Nvidia on integrating AI and robotics. Last month, the company also announced a Silicon Valley development hub. It signed an agreement last week with Airbus for a possible Japanese version of the Eurodrone defense drone. Kawasaki Heavy manufactures aircraft, missiles, and submarines. It is expected to benefit from Japan’s military expansion in the face of increased regional tensions. The company expects its business profit will reach a record of 170 billion yen for the current fiscal period. ($1 = 162.2400 yen)
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Prices of oil rise after breakdown in Iran-US talks
Prices of oil rose on Wednesday due to concerns that a breakdown in negotiations between the U.S. and?Iran? for a final deal to end their conflict could extend the supply disruptions throughout the Middle East. Brent futures increased 33 cents (0.45%) to $73.28 per barrel at 0339 GMT. U.S. West Texas Intermediate crude (WTI), however, rose 34 cents (0.49%) to $69.84 per barrel. "Hormuz is still reopening, but it's patchy and unpredictable. It's also not completely transparent." "Hormuz continues to reopen but it's patchy, unpredictable, and not fully transparent," Vandana said. Jared Kushner, the son-in law of Donald Trump, and Steve Wittkoff, the envoy, arrived in Doha on Tuesday for "high-level" talks, which the White House called them. Iran and Qatar, however, said that they would be meeting with mediators rather than Iranians. Qatar reported that Sheikh Mohammed bin Abdulrahman al-Thani, the Prime Minister of Qatar, was one of those who met with Witkoff & Kushner. Brent dropped?by about $45 per barrel between the first quarter and the second quarter of this year. This was its biggest quarterly loss since the 2008 financial crisis. U.S. Crude Futures fell by about $31 in the first quarter of this year, their biggest quarterly loss since 2020 when the COVID-19 Pandemic wiped out global oil demand. The declines came after progress in ending the Middle East conflict. They were a retreat from the gains that had been made earlier due to the hostilities. A poll on Tuesday showed that analysts have cut their 2026 oil price forecasts after five consecutive monthly increases. This is the first time they've done so since the Iran War began. The reopening of Strait of Hormuz has eased fears of prolonged supply disruptions. JD Vance, U.S. Vice-President, said that Iran will not be able to charge?tolls for ships passing through the Strait. He told The Michael Knowles Show: "This won't end with the Iranians collecting tolls from ships traveling through the Strait." Vance claims that the oil flow through the Strait has been restored to its pre-war level. Market?sources cited data released by the American Petroleum Institute on Tuesday that showed U.S. crude inventories had fallen again last week. Gasoline stocks were also down. Sources, who spoke on condition of anonymity, said that crude stocks dropped by?6.1million barrels during the week ending June 26. The Energy Information Administration is scheduled to release official U.S. crude oil stock data at 10:30 am EDT (1430 GMT), on Wednesday. Reporting by Mohi Narayan from New Delhi, and Georgina McCartney in Houston. Editing by Shri Navaratnam
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Oil prices rise as Iran's refusal of US envoys to meet Iran dims ceasefire hope
The oil prices rose on Wednesday morning as investors reacted to the news that Iran will not be meeting with U.S. ambassadors. This puts further pressure on the interim truce agreed between both countries in the four-month long war. Brent futures increased 50 cents (0.69%) to $73.45 per barrel at 1208 GMT. U.S. West Texas Intermediate crude rose 63 cents (0.91%) to $70.13 per barrel. The White House said that Jared?Kushner, the son-in law of Donald Trump, and Steve Witkoff, the envoy, arrived in Doha on Tuesday for "high-level" talks, but Iran and Qatar stated they would only meet with mediators and not the Iranians. Qatar reported that Sheikh Mohammed bin Abdulrahman al-Thani, the Prime Minister of Qatar, was one of those who met with Witkoff. Brent dropped by $45 between the first and second quarters this year. This was its biggest quarterly loss since 2008. ?U.S. Crude futures fell by around $31, the largest quarterly drop since 2020 when the Covid-19 pandemic ravaged global oil demand. The declines came after progress in ending the Middle East Conflict, and a retreat from the gains that were made earlier as a result of the hostilities. A poll on Tuesday showed that analysts have reduced their oil price forecasts 2026 for the first since the Iran War began. This comes after five consecutive monthly increases. The reopening of the Strait of Hormuz has eased fears of prolonged supply disruptions. JD Vance, U.S. Vice-President, said that Iran will not be able to collect tolls from ships passing through the Strait of Hormuz. He told The Michael Knowles Show: "This won't?end with the Iranians collecting tolls." Vance claims that the oil flow through the Strait has been restored to pre-war levels. Market sources cited data released by the American Petroleum Institute on Tuesday, which showed that U.S. crude inventories dropped again last week, while gasoline stocks declined as well. Sources, who spoke on condition of anonymity, said that crude stocks dropped by 6.1 million barrels during the week ending June 26. The markets are awaiting official U.S. crude oil stock data to be released by the Energy Information Administration at 10:30 am EDT on Tuesday. (Reporting and editing by Shri Navaratnam in Houston)
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McGeever: Why Trump's tariffs have a lot of bark but little bite
Donald Trump's favourite word is "tariff". His continued use of the term last year sparked fear in the markets as his administration unilaterally implemented the most protectionist trade policies since 1930. The 'bark' was worse than the bite. Just over a month has passed since Trump declared "Liberation Day" and the average U.S. Tariff rate is lower in April 2025 than most feared. At just under 10% the daily effective rate of pre-substitution is still four times higher than it was at the end 2024. Tariffs are barely a factor on the financial markets. This is partly because investors are more concerned about real wars than trade wars. The economic impact of Trump’s tariffs is also not as bad as many people feared. This could be because the trade war coincided a technological boom. Perhaps that is too simplistic. It may be years before the full impact of the redrawing of geopolitical and trade alliances in the world is known. Unexpected negative shocks could be on the way. The fact that STATISTICALLY INSIGNIFICANT tariffs have had a muted impact on the economy over the last year is partly explained by a simple fact: Actual levies were lower than statutory rate. This is the main argument of a Brookings Institution article by Pablo D. Fajgelbaum of the University of California, and Amit Khhandelwal of Yale University. By December of last year, 57% or so of U.S. imported goods were still duty-free. This includes the majority of goods imported from Canada and Mexico, under the United States-Mexico-Canada Agreement (USMCA). The Trump administration is expected to announce on Wednesday it will not be extending the 32-year old North American Free Trade Zone. However, that only starts the clock for another review, as the pact does not expire until 2036. Tariffs at the border are usually lower than headline rates due to other factors, including legal loopholes or special agreements. China is the only major trading country that has offered a firm and sustained response to Trump's tariffs. Hyperscalers invested hundreds of billions of dollars in chips and infrastructure to boost global trade. According to the Brookings article, the net effect of tariffs has been only between minus 0.1 and plus 0.1% of GDP until December. The findings are in line with the analysis of The 'Budget Laboratory at Yale. The report estimates that tariffs will cause the U.S. to be 0.1% less prosperous in the long term, which is the equivalent of $30 billion in 2025 dollars. Other words, statistically significant, but not at all in the near future. Markets vs Real Economy Try telling that to U.S. customers, who are forced to pay 90% of Trump's Tariffs. In an April Federal Reserve report, the paper found that tariffs are solely responsible for the excess inflation of core goods from January 2025. The same paper, however, also indicated that the tariff pass-through is now essentially complete. It was, in other words, a price change that happened only once, as the Trump Administration had claimed. If true, this would be good news for Americans whose personal savings rate, which has fallen to the lowest level in four years due partly to higher prices, is now below 3%. Also, there's another side of the story. Tariffs are taxes that fall on the person who pays them. Usually, this is the consumer. They are a direct source of revenue for the government, reaching $264 billion in 2017. This is more than three times the revenue in 2024 and represents 0.83% GDP, which is the highest since over a century. Theoretically, the revenue generated by the tax cuts or increased spending should be able to offset some of the impact on consumers. SLOW BURN? But investors shouldn't become complacent. Although trade uncertainty has decreased, it is still very high. According to the Tax Foundation, the U.S. tariff policies have changed more than 50 times since Trump's second term began. There's no reason to think that this is the end, especially given Trump's willingness to use tariffs to threaten foreign policy negotiations. Investors have mostly ignored these concerns. "Markets are actually quite disconnected from what is happening in the real economic," says Rebecca Harding, trade economist and author of "The World at Economic War", a book published at the end of last year. The cost of doing international business and the difficulty in establishing new routes will continue to rise as trade uncertainty increases. Small and medium-sized businesses (SMEs) will struggle to keep up with the demands. It's clear that the predictions of tariff doom by many economists have been wrong, but it could be just a question of timing. Brexit is a cautionary tale. The UK economy didn't immediately crash after Britain voted to exit the European Union in 2016. 10 years later, the damage to the economy is still being felt. It is still unclear whether the slow-burning economic impact of tariffs on the U.S. will be similar. However, it's worth asking. You like this column? Check out Open Interest, your new essential source for global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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South32 sells certain aluminum assets to Alcoa up to $5.6 billion
South32, an Australian company, announced on Wednesday that it had agreed to sell the'majority' of its aluminium assets for up to $5.6 billion. Alcoa acquired the individual interests of the diversified mining company in Australia's Worsley Alumina, South Africa’s Hillside Aluminium and Brazil's MRN Bauxite Mine, Brazil Alumina Refinery, and Brazil Aluminium Smelter. South32 said that the U.S. aluminium giant will also assume rehabilitation provisions of around $1.2 billion. Matthew Daley, the new CEO, said that "our business will be simpler, with a portfolio of upstream operations with higher margins, reduced complexity, and greater resilience." This will allow for a leaner and lower-cost operation model, which will provide ongoing value through an anticipated US$125M reduction per year in?overhead cost as new support structures will be implemented. The transaction should be completed in the second half of 2027. Alcoa stated in a separate press release that it expects the 'deal to generate synergies of approximately $900 million through optimization across complementary assets. (Reporting by Shivangi Lahiri in Bengaluru; Editing by Vijay Kishore)
As boards dream of takeovers, mega-deals are driving record M&A.
LSEG data shows that a surge in mega-deals of $10 billion or more drove global M&A levels to record levels during the first half 2026. Some companies took advantage easier regulatory environments to pursue their dream deals.
The value of the announced deals grew by 48% year-on-year to $2.8 trillion, the highest total for the first half of the year since LSEG began recording in 1980. The number of deals announced in 2026 fell by 9%, to 24,000 - a six year low. LSEG data revealed that 47 deals above $10 billion accounted for more than $1.3 trillion, and nearly 50% of the global volume. This was a record.
Jay Hofmann is the co-head for mergers and acquisitions at JPMorgan in North America.
He said that financing "is available at different sizes" and allows companies to acquire assets they need "to navigate the change and position themselves for the future".
Ivan Farman is the co-head of Global M&A for Bank of America. He said that the strong momentum in the upper end of the market and the lesser momentum in the lower end reflects the growing belief that a $1 to $3 billion transaction "takes as much time as larger ones, so when a chance to make a large transaction arises, businesses see this as an opportunity to act."
Bankers say investors place a high premium on the size and focus of a company.
Farman said that "bigger companies with bigger moats, and a greater competitive advantage, trade at better multiples than small companies." The CEOs and management are actively pursuing long-held dream deals.
Some dealmakers are so optimistic, despite the geopolitical turmoil that they believe the activity could surpass the post-pandemic M&A peaks of 2021. They expect companies to take advantage of the fewer regulatory hurdles. Bankers report that the Trump administration is receptive towards large U.S. mergers. European policymakers are proposing a rewrite of rules in order to create local champions. Cash-rich Japanese corporations are expected to make more deals in Asia. This is due to proposed revisions of Japan's Governance Code that emphasize the need to efficiently use cash.
Morgan Stanley's Jan Weber, the head of Morgan Stanley's mergers and acquisitions for Europe, Middle East, and Africa said, "Momentum behind the scenes has started to accelerate over the past six weeks, with a growing portfolio of cross-border strategic deals."
"It seems like many indicators are green for more M&A, and boards feel they need to take action." Weber said, "I do believe we are moving towards the next peak."
Ed Wittig said that companies are focusing on growth. He is the co-head for Asia?Pacific mergers? acquisitions at Goldman Sachs.
He added that there was a lot of enthusiasm for synergies and the markets reward those who execute well. Bankers reported a record number of corporate separations driving dealmaking, as companies sought ways to adapt to changing industry dynamics. Examples include Comcast's planned spinoff NBCUniversal and Honeywell's split into three.
The market has become more conservative in its approach to businesses with a high degree of diversification. Previously, investors praised diversity as a means of reducing risk. However, today, they are wary of it because of the complexity that comes from this and the lack of focus on management's part.
TECHNOLOGY DOMINATES
The first half of the year saw a plethora of financing for acquisitions. Global?investment grade corporate debt issues reached $3.4 trillion. This is a 10% year-on year increase and the highest total year-to date since LSEG began keeping records.
LSEG data shows that technology remained the most active sector in global dealmaking, with $649 Billion of transactions announced in the first half.
The U.S. is a prime example of this. The other side is the HALO, which includes heavy assets, low-obsolescence, large infrastructure, and a big?industry. This will continue regardless of AI's impact, said?Sam Newhouse.
In the first half 2026, cross-border M&A amounted to $893 billion. This is up 62% on the previous year and represents the best start of the year since 2018. Cross-border M&A reached $893?billion in the first half of 2026, up 62% from a year ago and the best start since 2018.
Kirshlen Moodley is the head of UK M&A at BNP Paribas. (Reporting from Anousha Sakoui, Echo Wang and Kane Wu respectively in London, New York and Hong Kong. Editing by Alexander Smith).
(source: Reuters)