The much-anticipated meeting between Presidents Trump and Xi yielded tangible results. China agreed to pause export controls on rare-earth magnets in exchange for what Beijing termed a U.S. pledge to rollback expansion of restrictions on Chinese companies. The U.S. will halve its fentanyl-related tariff (from 20% to 10%) and postpone a full range of reciprocal tariffs for an additional year. China pledged to resume purchases of soybeans, sorghum and other farm products. The U.S. and China pledged to work together on issues such as trade, energy and AI.
The FOMC voted 10-2 to cut the target fed funds rate by 25bps (to 3.75%-4.00%), with Governor Miran and Kansas City Fed President Schmid dissenting in opposite directions (by 25bps each), a rare Fed spread that has occurred only 3 times since 1990. Chair Powell referenced this FOMC policy divide as well as the lack of federal government economic data in stating a December cut was far from guaranteed, “What do you do if you’re driving in the fog? You slow down.”
As expected, the Fed cited signs that money market liquidity was becoming “scarce” in halting its QT balance sheet runoff. While maintaining its balance sheet at the (still enormous) $6.6 trillion level, the Fed will reinvest proceeds of maturing mortgage-backed securities into Treasury bills to increase money market liquidity.
AI market mania encountered a speedbump as MSFT and META results disappointed due to significantly higher than expected AI infrastructure spending. However, Nvidia touched a $5T valuation, or 16.6% of U.S. GDP. By comparison, Cisco peaked at 4.1% of GDP at the height of the dotcom bubble.
Reuters reports the U.S. labor market has evolved from the “no hire, no fire” landscape of the past year to “no hire, more fire.” Challenger, Gray estimates 950,000 job cuts in Jan.-Sept. period, including Amazon (14k), UPS (48k), Intel (25k), Microsoft (15k) and Accenture (11k).
Fitch warned the $3T shadow banking industry has developed “bubble-like characteristics” that could trigger a global financial shock rippling through private credit, fund managers, banks and insurers.
European bonds are ticking lower by 3bps-4bps across the board. Spot gold and spot silver +1%.
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