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Source: Reuters

The Lebanese army has announced the completion of a plan to demilitarize southern Lebanon, a region where the Iran-backed group Hezbollah has long maintained extensive military infrastructure aimed at Israel.

In a statement on Thursday, the military said it had successfully demobilized the area between the Litani River and the Israeli border. This move marks the first phase of a broader national strategy to disarm all militias and represents a rare assertion of state authority in a region historically dominated by Hezbollah.

The development could significantly lower tensions with neighboring Israel and prevent a renewal of the conflict that devastated the area. So far, neither Israel nor Hezbollah has officially commented on the army's announcement.

A Fragile Peace After a Devastating War

This disarmament effort follows a US- and French-backed ceasefire agreed to in late 2024, which ended months of intense warfare between Israel and Hezbollah. That conflict, which itself escalated from nearly a year of skirmishes, resulted in thousands of deaths, primarily in Lebanon.

A core condition of the truce was the complete disarmament of Hezbollah, starting with its forces south of the Litani River and eventually extending throughout the rest of the country.

However, the peace has been shaky. Israel has conducted regular missile and rocket strikes into Lebanese territory in recent months, raising fears the ceasefire could collapse. Israeli officials justify these actions as necessary to prevent Hezbollah from rebuilding its arsenal.

Lingering Threats and Ongoing Operations

The Lebanese military now claims operational control over all territory south of the Litani, with the exception of areas currently occupied by Israeli forces. The army confirmed it is still working to clear unexploded ordnance and destroy the extensive network of tunnels previously used by Hezbollah fighters.

This task is complicated by ongoing hostilities. According to the United Nations, which maintains a peacekeeping force in southern Lebanon, near-daily Israeli strikes on Hezbollah personnel and sites have continued since late 2025, killing dozens.

Lebanon's army argues that these Israeli attacks, along with the occupation of about five outposts inside Lebanon, have actively hindered its ability to fully disarm Hezbollah. The disarmament plan, initiated in September under a government directive, has faced pressure from the United States to accelerate its timeline.

Hezbollah's Weakened but Entrenched Position

Hezbollah, which also functions as a major political party with strong support among Lebanon's Shiite Muslim population, has maintained a powerful military presence in the south since Israel's withdrawal in 2000. For years, it operated largely independent of the Lebanese state and was considered one of the world's most formidable militias.

The group's position was significantly weakened by the 2024 war, which killed many of its commanders and destroyed a large portion of its weapons. A further setback occurred just over a year ago with the toppling of Syrian President Bashar al-Assad, a key ally who facilitated the transfer of Iranian weaponry to Hezbollah through Syria.

Despite these developments, the Lebanese army remains under-resourced and has historically been cautious about confronting Hezbollah directly, raising questions about the long-term sustainability of the new security arrangement.

Bank of America is standing by its bullish forecast for the euro, projecting significant gains against most major currencies by the end of 2026. In a new research note, the bank reaffirmed its long-term positive outlook, though it advises investors to expect a slow start.

Key Currency Targets for Year-End 2026

The bank’s analysis sets specific price targets for key currency pairs, anticipating a broad rally for the euro. The exceptions to this bullish view are the British pound and Scandinavian currencies.

BofA's forecasts for the end of 2026 include:

• EUR/USD: 1.22

• EUR/JPY: 189

• EUR/GBP: 0.84

Why Patience Is Key: A Cautious Near-Term Stance

While the long-term picture is bright, BofA analysts expressed caution for the immediate future. They note that the bulk of the U.S. dollar's expected weakness is likely to materialize after the first quarter of 2026.

Several positive catalysts that could drive the euro higher are expected to develop gradually or emerge later in the year. These factors include lower U.S. interest rates, Chinese stimulus efforts, currency hedging activities, and the effects of German fiscal policy.

ECB Policy and Economic Outlook Bolster the Euro

BofA's optimism is supported by its expectations for Europe's economy and monetary policy. The bank sees a lower threshold for positive European economic surprises compared to mid-2025, which underpins its overall positive outlook for 2026.

On the policy front, BofA economists expect the European Central Bank (ECB) to implement an interest rate cut in March. Looking further out, they believe two ECB rate cuts over the next 18 months are more probable than a single rate increase.

European defense stocks surged to a new record high on Thursday following a call from U.S. President Donald Trump for a sharp increase in military spending. The news sent shares of top arms manufacturers climbing across the continent, with the broader aerospace and defense companies index rising 3% to an all-time peak.

Major players in the sector saw significant gains. In Germany, Rheinmetall shares climbed over 2%, while its domestic peer Renk added 1.8%. Italy's Leonardo advanced by 3.7%, and BAE Systems in the UK rose by 6.5%.

Inside the $1.5 Trillion Defense Proposal

The market rally was triggered by President Trump's demand on Wednesday for U.S. defense expenditures to increase by more than 50%, reaching $1.5 trillion by 2027. In a social media post, Trump stated this target was the result of "long and difficult negotiations with Senators, Congressmen, Secretaries, and other Political Representatives."

However, uncertainty remains over whether the proposal will secure legislative approval. For the year 2026, Congress has already allocated $901 billion for defense, a figure significantly lower than the trajectory suggested by the president's new target.

To cover the additional costs, Trump said revenue would be generated from his administration's sweeping tariffs. This claim has been met with skepticism; according to Reuters, estimates from a nonpartisan think tank suggest these levies would only cover about half of the proposed spending increase.

Geopolitical Context and Contractor Mandates

Trump's announcement comes in the wake of heightened geopolitical activity. The U.S. recently conducted an attack on Venezuela that resulted in the capture of the country's leader, Nicolas Maduro. The White House has since suggested the potential for using the American military in other global regions, and U.S. troops have also been deployed in some domestic cities.

In a separate but related move on Wednesday, President Trump announced he would prohibit defense contractors from issuing dividends or conducting stock buybacks until they accelerate their weapons production.

China has implemented an export ban on dual-use items to Japan, a move that initially sparked fears of a broader supply chain disruption, particularly for rare earths crucial to the automotive sector. However, Beijing has clarified that the restrictions are narrowly focused on military applications and will not affect civilian industries.

Ban Targets Military, Spares Civilian Supply Chains

According to China's commerce ministry, the new export controls are strictly aimed at preventing goods from being used to enhance Japan's military capabilities.

"Civilian users will not be affected," commerce ministry spokesperson He Yadong stated, emphasizing that China remains committed to stable global production and supply chains.

The restrictions prohibit exports to Japan intended for military use or any purpose that could contribute to its military strength. He Yadong asserted that the measure was a "legitimate, justified, and lawful" step to curb Japan's "re-militarisation and nuclear ambitions."

Taiwan Tensions Fuel Export Control Measures

The trade restriction follows a period of deteriorating diplomatic ties between the two nations. The situation escalated after Japanese Prime Minister Sanae Takaichi suggested in November that a Chinese attack on Taiwan could provoke a military response from Japan if it threatened the country's survival. Beijing labeled the remark "provocative."

In response to the ban, Japan's foreign ministry lodged a strong protest and demanded that China withdraw the measures.

The move also comes as Japan's cabinet approved a record spending package that includes a 3.8% increase in its annual military budget, raising it to ¥9 trillion (US$58 billion).

Understanding Dual-Use Goods and Rare Earth Controls

Dual-use items are goods, software, or technologies with both civilian and military applications. This category includes high-performance rare earth magnets, which are essential components in electric vehicles (EVs) and conventional car parts like side mirrors, speakers, and oil pumps.

China maintains an export control list of approximately 1,100 dual-use items that require a license for overseas shipment. This list includes at least seven categories of medium and heavy rare earths.

While the commerce ministry spokesperson confirmed the ban's military focus, he did not specify which items are affected or comment on state media reports that China might tighten rare-earth export licenses to Japan more broadly.

The Trump administration announced on January 7 that the United States is withdrawing from 66 international organizations, conventions, and treaties deemed contrary to the nation's interests.

The list of entities, released in a presidential memorandum, includes 31 bodies tied to the United Nations and 35 that are not. The move follows a February 2025 executive order signed by President Donald Trump, which directed the State Department to review international intergovernmental organizations that "no longer serve American interests."

Rationale for the Withdrawals

In a statement, Secretary of State Marco Rubio explained the administration's reasoning, characterizing the targeted institutions as poorly managed and counterproductive.

"The Trump Administration has found these institutions to be redundant in their scope, mismanaged, unnecessary, wasteful, poorly run, captured by the interests of actors advancing their own agendas contrary to our own, or a threat to our nation's sovereignty, freedoms, and general prosperity," Rubio stated.

He emphasized a shift in U.S. policy regarding funding for these groups.

"President [Donald] Trump is clear: It is no longer acceptable to be sending these institutions the blood, sweat, and treasure of the American people, with little to nothing to show for it," Rubio added. "The days of billions of dollars in taxpayer money flowing to foreign interests at the expense of our people are over."

Rubio further argued that many organizations are "often dominated by progressive ideology and detached from national interests." He cited "DEI mandates," "'gender equity' campaigns," and "climate orthodoxy" as elements of a "globalist project" that the administration opposes.

"These organizations actively seek to constrain American sovereignty," he said, linking their work to elite networks that the administration has already started dismantling.

A Look at the Targeted Organizations

The withdrawals span a wide range of diplomatic, economic, and environmental bodies.

UN-Affiliated Departures

The UN-related entities from which the U.S. is withdrawing include:

• Department of Economic and Social Affairs

• International Law Commission

• International Trade Centre

• Peacebuilding Commission

• Peacebuilding Fund

• U.N. Democracy Fund

• U.N. Energy

• U.N. Entity for Gender Equality and the Empowerment of Women (UN Women)

• U.N. University

Non-UN and Hybrid Groups

Organizations not affiliated with the United Nations are also on the list, such as the 24/7 Carbon-Free Energy Compact and the Commission for Environmental Cooperation. The memorandum also identified over two dozen "hybrid threats," citing the Forum of European National Highway Research Laboratories and the Global Community Engagement and Resilience Fund as examples.

Precedent: The UN Human Rights Council Exit

This action follows the Trump administration's withdrawal from the UN Human Rights Council less than a year prior. On February 4, 2025—the same day the review of international organizations was ordered—President Trump signed an executive order to exit the council.

At the time, Trump stated the council "has not fulfilled its purpose and continues to be used as a protective body for countries committing horrific human rights violations." The White House expanded on this, citing the inclusion of China and Iran on the council despite their human rights records and an alleged bias against Israel.