by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few words on Nvidia’s third-quarter earnings release and its broader implications. We next review several other international and US developments that could affect the financial markets today, including the minutes from the Federal Reserve’s October policy meeting and more details on the administration’s new plan to end the war in Ukraine.

US Artificial Intelligence Sector: After market close yesterday, Nvidia said its third-quarter revenues and profits reached new record highs, amid what CEO Jensen Huang called “off the charts” demand for its advanced Blackwell artificial-intelligence chips. Revenues were up 62% year-over-year, while earnings were up 65%, in both cases beating expectations. Looking forward, the results could well give a new rush of momentum to Nvidia’s stock price and the broader AI sector.

• Separately, the Commerce Department late yesterday approved the sale of up to 70,000 advanced AI chips to two firms based in the United Arab Emirates and Saudi Arabia, reversing a decision earlier this year that rejected the application over security concerns.
• The earlier security concerns focused on the risk that the state-owned firms receiving the chips could give China or other adversarial countries access to them, potentially undermining the US lead in the technology.
• In our view, the decision to allow the sale illustrates how the administration is now clearly favoring the so-called “tech bros” element of President Trump’s political coalition over its “China hawk” element.

US Fiscal Policy: As President Trump continues to push his idea of using new tariff revenues to provide a $2,000 “dividend” payment to low- and moderate-income households, reports today say legislators are politely pushing back on the idea. One key theme of the reporting is that Republicans in the Senate and House prefer to use the new revenues to lower the US’s yawning budget deficit. The Republicans’ willingness to push back against the White House could also reflect a subtle shift of power toward Congress after the recent Epstein files controversy.

US Monetary Policy: Minutes released yesterday from the Fed’s October policy meeting showed that the policymakers were deeply divided and expressed “strongly differing views” on the need to cut interest rates for a third time this year at the meeting in December. Recent public statements by policymakers had already made it clear that there is disagreement on the policy committee about how quickly to cut rates. However, the minutes suggest the disagreement is even deeper than previously known.

• The deep divisions on the policy committee suggest that if the White House is able to replace Chair Powell and perhaps other committee members with more dovish officials next year, as expected, it could dramatically shift the Fed’s policy stance.
• Futures trading currently suggests there is more than a 70% chance that the officials will keep the benchmark fed funds rate steady at a range of 3.75% to 4.00% at the meeting in December, despite administration pressure for another rate cut.

US Labor Market: The Bureau of Labor Statistics yesterday said it won’t produce a monthly employment report for October, when the federal government was shut down because of the Congressional budget dispute. However, the agency said the November report will be released on December 16 — 11 days later than normal — and it will include nonfarm payroll data for October.

• The news means that the Federal Reserve officials meeting to update their monetary policy on December 9-10 will have no employment data for either October or November to work with.
• As shown in our Economic Releases section below, the BLS today released its monthly labor market report for September.

United States-Russia-Ukraine: Reports yesterday said the Trump administration has been in direct talks with Russia about a new 28-point plan to end the war in Ukraine. Russian officials are reportedly delighted with the proposal because it addresses their key concerns. The plan would apparently require Ukraine to make unpalatable concessions, but White House officials believe President Zelensky’s weakened political position would prevent him from resisting. The US officials have given some details to allies and believe it could be publicized by month’s end.

• The plan would reportedly require Ukraine to cede the remainder of its eastern Donbas region — including land currently under Kyiv’s control — and cut the size of its armed forces by half. The plan also calls for Ukraine to abandon key categories of weaponry and would include the rollback of US military aid that has been vital to its defense. In return, the US would offer Europe and Ukraine security guarantees. Russia would be required to stop its current aggression against Ukraine.
• The details so far imply the plan is lopsided in Russia’s favor and would leave Ukraine open to renewed Russian aggression in the future. That suggests it will be resisted by the US’s allies in Europe and by Ukraine itself. Indeed, reports this morning say European officials are already pushing back against the plan.
• News of the plan helped give a boost to global stocks yesterday, but the likely resistance from Europe and Ukraine suggests it is far from a done deal.
• Even if the plan is put into place, it appears unlikely to diffuse Russia’s political and military aims in Eastern Europe. We therefore believe that European defense firms will continue to benefit from rearmament efforts on the Continent, giving a boost to European defense stocks.

United States-Saudi Arabia: President Trump and Crown Prince Muhammad bin Salman yesterday reached a deal in which US rare-earths miner MP Materials will partner with the Department of Defense and Saudi Arabia’s state-owned mining company to build a rare-earth processing facility in the kingdom. The deal reflects the continuing frenzy for Western rare-earth investment to help reduce vulnerabilities from relying on China for supplies.

China-Japan: In further retaliation for Japanese Prime Minister Takaichi’s recent statement that a Chinese blockade of Taiwan would require Japan to intervene militarily, Beijing has now reinstituted its ban on Japanese seafood imports, suspended talks on resuming Japanese beef imports, and threatened more countermeasures. As we have noted before, the key risk in the escalating crisis is that Beijing could reimpose a ban on exporting Chinese critical minerals to Japan, a move that could severely crimp Japan’s auto production and other industries.

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