Powell says Dec rate cut may not happen, US and China reach a trade truce

US-China Trade Truce Reached [00:05]

• The US and China agreed to a one-year trade truce after a meeting between President Trump and Xi Jinping in South Korea.
• The US will cut fentanyl-related tariffs in half and pause restrictions on blacklisted Chinese firms.
• China will restart soybean purchases and resume rare earth shipments, seen as key wins for US farmers and industry.
• The stock market reaction to the truce was relatively muted, with investors focused on big tech earnings.
• Ben Worskll from Yahoo Finance explained that the tariff reduction on fentanyl tariffs is 10%, cutting them in half.
• The overall average US tariff rate on Chinese goods remains at 47% after this reduction.
• China agreed to pause export controls on rare earth minerals, and the US is decreasing its export controls on blocked persons by 50%.
• There is a mutual trade-off on shipping levies, which are both going down.
• China agreed to increase soybean purchases by 12 million metric tons, approximately 10% of the US annual crop.
• This truce is expected to continue into next year while further talks proceed, with President Trump planning to visit China in April.

"The bottom line here for markets is that there is a truce that's going to keep going forward into next year while while talks go forward."

Big Tech Earnings and AI Investment Focus [00:34]

• Meta, Microsoft, and Alphabet reported earnings, with Alphabet shares jumping due to strong demand for its cloud and AI services, signaling capex spending success.
• Meta pledged to spend aggressively on AI, with the CFO indicating a "notably larger" amount than the $72 billion planned for 2025, though returns are unclear.
• Microsoft's CFO stated they cannot meet current demand for AI and other services even after spending tens of billions, and plan to continue this investment.
• Investors are concerned about the massive billions being poured into AI and where it will lead, particularly for Meta and Microsoft.
• Meta plans to "get the pain out of the way right away" with spending and hopes to find other uses if AI demand wanes.
• Microsoft is also increasing capex, focusing on GPUs, CPUs, and data centers, and is capacity constrained through the end of the fiscal year (second quarter of fiscal 2026).
• Despite spending, Microsoft's CFO Amy Hood stated, "We are and I said this now — we've been short — now for many quarters. I thought we were going to catch up. We are not. Demand is increasing. It is not increasing in just one place. It is increasing across many places."
• Google Cloud Platform is performing well, contributing to Alphabet's stronger results compared to Meta and Microsoft.
• Microsoft's deal with OpenAI means they are no longer the sole cloud provider of choice, which may benefit them by avoiding being solely on the hook for buildout costs.
• Alphabet's capex in the third quarter was $7.8 billion, up 89% year-over-year, a "mind-blowing number" that has become a major market driver.

"We're still capacity constrained and we think we're still going to be capacity constrained through the end of the fiscal year."

Federal Reserve Signals Caution on Rate Cuts [01:14]

• The Federal Reserve delivered another quarter-point rate cut, but Chair Powell issued a warning about future cuts.
• Powell stated that a further reduction in the policy rate at the December meeting is "not a foregone conclusion. Far from it. Policy is not on a preset course."
• Concerns for some policymakers include a cooling job market, while others warn about persistent inflation.
• The US government shutdown is causing a data blackout, further clouding the Fed's outlook.
• The market was caught off guard by Powell's comments, with expectations for a December cut priced in at nearly 100%.
• Leslie Falconeio of UBS Global Wealth Management noted that the market was "very off guard" by Powell's statement, which was in his written script.
• John Hilson of Stone X argued that the market should not have been surprised, as Powell had previously pointed to the Fed's dot plot reflecting divisions and probabilities for a December move.
• Powell's comment was an explicit attempt to correct market expectations that a December cut was certain.
• Governor Chris Waller also expressed caution about whether the Fed should move, suggesting the Fed should "slow down" due to uncertainty.
• Leslie Falconeio believes the market is also wrong about the terminal rate, suggesting it might be higher than the priced-in 2.8% and that the market is pricing in the terminal rate occurring too quickly.
• John Hilson suggests the neutral rate is closer to 4% rather than the 3% in the Fed's models, given accommodating financial conditions.
• He also advises watching Chris Waller, as he may impede plans for very low interest rates if he doesn't become Fed chair.
• The two dissents seen in the Fed's decision indicate significant disagreement and a potentially difficult road ahead for achieving very low interest rates.

"A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course."

Nvidia's Strong Demand and Future Outlook [13:45]

• Nvidia was not significantly mentioned in the context of the US-China trade discussions, particularly regarding Blackwell chips.
• Jensen Huang of Nvidia announced a $500 billion backlog for their newest chips at the GTC event.
• This backlog is seen as a major stock driver, with analysts expecting it to continue growing.
• Nvidia is expected to benefit from the increased capex spending by tech companies.
• Uber is planning to use Nvidia chips for autonomous cars in 2027.
• Nvidia's stock is poised to open above $5 trillion in valuation.

"That $500 billion backlog for their newest chips. That is the stock driver and it's great that Uber is now going to have autonomous cars in 2027 using Nvidia chips."

Pharmaceutical Sector Trends: Metsera, Merck, and Eli Lilly [15:02]

• Metsera, an obesity drug company, is in a bidding war between Novo Nordisk ($6.5 billion unsolicited bid) and Pfizer.
• Merck is trimming its full-year sales forecast despite beating third-quarter estimates, partly due to the impending patent expiration of its cancer drug Kruda in 2027.
• Eli Lilly beat estimates and boosted its full-year revenue guidance, driven by strong sales of its blockbuster weight loss and diabetes drugs, Mounjaro and Zepbound, which combined outperformed expectations by nearly $1.3 billion.
• The obesity market is projected to reach $100 billion by 2030.

"The obesity drug company is now in the middle of a bidding war."