"Next Month, Next Quarter, Next Year"
By Molly Schwartz, cross-asset macro strategist at Rabobank
In a tense Congressional Hearing before the foreign relations committee, Marco Rubio defended the Trump Administration’s war in Iran, praising the success of US military operations destroying Iranian military and nuclear facilities. He also said that a deal with Iran could happen “today, tomorrow, or next week.” However, the recent military escalations between the US and Iran, the refusal of Israel and Hezbollah to cooperate, and reports of Pezeshkian’s resignation — leaving Iran in the hands of the IRGC — mean that a deal seems to lie more on the horizon of next month, next quarter, or maybe even next year.
Our base case that we see passage through the Strait disrupted for at least three more months still stands as we have yet to see any tangible headlines to suggest an accelerated timeline. The negotiations currently lie in Iran’s hands, as Bloomberg reports Iran’s Mehr news saying that “officials in Tehran are discussing their ‘final text’ to send to the US.” One might be hesitant to truly deem this text as “final” (if it even exists), as it may be more of a “final_v3.doc”, or a “final_FINAL_v6.doc”, or even a “final_FINAL_totallyforrealthistime.doc”.
The most promising resolution right now is that the IRGC remains in power, but enriched uranium is handed over to an executor, like China, though we have yet to see any confirmed updates that this is a feasible solution that Iran would actually agree to at this juncture. The extended 60-day ceasefire is still ongoing, while both the US and Iran are dedicated to keeping the Strait closed and exchanging fire. CENTCOM posted on X today to show off the USS Abraham Lincoln enforcing the US blockade, which has apparently redirected 122 vessels to “ensure compliance.”
Yesterday, Trump slammed Vulcan’s Hammer on the AI industry, signing an executive order, “Promoting Advanced Artificial Intelligence Innovation and Security.” The executive order lauds how the administration has “unleashed tremendous technological growth and economic investment in AI by slashing the bureaucratic constraints that the prior administration placed on America’s AI developers and researchers, and by instead encouraging AI innovation and accelerating responsible AI adoption across government and industry.”
Part of the executive order is intended to support the AI industry, seeking to utilize AI in federal cybersecurity programs, and utilize AI models (potentially Mythos?) to pinpoint vulnerabilities. However, the order also seeks to impose new restrictions, likely in response to the emergency meeting triggered by Mythos a few months ago. This includes lots of classified processes and frameworks to make sure that an evil AI model, the likes of that in a Philip K. Dick novel, doesn’t usurp the American government as the presiding force leading the world’s global hegemon (or more likely, making sure these models can’t be used to hack into sensitive government websites). The process is referred to as a “voluntary framework” so that AI developers can submit their new models to the government 30 days before release to the public. Though the order also clarifies that “nothing in this section shall be construed to authorize the creation of a mandatory governmental licensing, preclearance, or permitting requirement for the development, publication, release, or distribution of new AI models, including frontier models.”
While innovation in the US is so hot that the government is now pulling in the reins a bit, officials in Canada are turning a blind eye to sluggish growth. Last week it was announced that Canadian GDP shrunk by 0.1% in Q1 of 2026, marking the second consecutive quarter of contraction and signalling a technical recession. Worse yet, the Q1 GDP estimate missed expectations of seeing growth at 1.5%, suggesting that the health of the Canadian economy has been overestimated by economists for the past few months.
Prime Minister Carney partially attributed the contraction to “uneven data” as the Canadian government “has been in the process of laying the foundations for a stronger, more resilient, more independent Canadian economy.” But at the same time, this comes less than a week after Carney celebrated close US-Canadian economic ties when speaking to the Economic Club of New York, saying that “Canada Strong will help make America great again.”
Bank of Canada Deputy Governor, Carolyn Rogers, has also brushed off the technical recession, saying that we need to “look past technical recession indicators” in favor of more leading economic indicators. But for some, the technical recession is a flashing red light, screaming that the current trade situation with the US is unsustainable and it’s time to sit down at the negotiating table.
Canadian trade minister LeBlanc sat with USTR representative Greer yesterday in Washington to discuss the USMCA. Prior to their sitdown, LeBlanc sent a letter to both Greer, and Mexico’s economy secretary Ebrard, asking to see the USMCA renewed for another sixteen years, as the USMCA review is currently underway. While the likelihood of the USMCA being renewed in its current form is slim to none—which LeBlanc is likely painfully aware of—he highlighted that conversations pertaining to the sectoral tariffs (Section 232 hitting steel, aluminum, automobiles, etc.) will be “essential.”