by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with yet another blow-up in the US-China trade war, with Beijing imposing sanctions on South Korean firms that allegedly assisted a US probe into the Chinese shipping industry. We next review several other international and US developments with the potential to affect the financial markets today, including another big artificial-intelligence deal and the first new record in silver prices since 1980.

United States-China: Beijing added five subsidiaries of South Korean shipbuilder Hanwha Ocean to its sanctions list overnight for allegedly helping a US investigation into China’s shipping industry. Because of the action, Chinese individuals and entities will now be banned from working with the Hanwha firms. More importantly, the Chinese action is being seen as another provocative move in the US-China trade war. The news has therefore sparked a new sell-off in equity markets, setting the stage for a decline in the US market at its open.

• One concerning aspect of Beijing’s move against Hanwha Ocean is that it signals China’s willingness to punish US allies and their companies for supporting US geopolitical and military goals. That raises the prospect that US-China tensions will broaden.
• Indeed, in a Financial Times interview yesterday, US Treasury Secretary Bessent slammed China’s recent moves in the trade war, saying, “they want to pull everybody else down with them.” The statement detracted mightily from Bessent’s encouraging statement in another venue yesterday that President Trump and General Secretary Xi still plan to meet later this month, despite the sudden rekindling of US-China trade tensions over the last week.

United States-Netherlands-China: New reports say the Dutch government’s recent seizure of Chinese-owned, Netherlands-based semiconductor firm Nexperia arose after the US warned that it wouldn’t remove the company from its sanctions list as long as its Chinese chief executive remained in control. That means Nexperia could have been left to “wither on the vine,” depriving the Netherlands of an important technology company. The news shows how third-party countries and their companies are increasingly being caught in the trade crossfire between the US and China.

US Artificial Intelligence Industry: In the latest big AI deal, OpenAI and Broadcom said they are working jointly to develop and deploy 10 gigawatts of custom AI processors and related computing systems. The firms didn’t release financial details, but sources said the deal will result in billions of dollars of new revenues for Broadcom, boosting its stock price dramatically.

• Along with OpenAI’s recent deals to buy chips from Nvidia and Advanced Micro Devices, it appears the company has sealed commitments to buy 26 gigawatts of chips in the coming few years, worth hundreds of billions of dollars.
• As large as that amount is, sources say OpenAI plans to buy a total of 250 gigawatts of chips by 2033, for a total commitment of about $10 trillion. If its actual purchases are anywhere near that goal, it suggests chip designers and manufacturers still have plenty of AI business in front of them.
• Of course, OpenAI’s rising purchase commitments and firms’ vast AI investments are also raising the risk of wasted resources and over-extension. The AI frenzy is therefore looking more risky, although there are few signs of problems in the near term.

Global Precious Metals Market: Prices for near silver futures yesterday surged to $50.13 per ounce, up almost 7% on the day and 85% for the year-to-date. The action brought silver prices to their first record high since 1980. Silver prices typically move in the same direction as gold prices, though with a lag and greater volatility, like a skier to a motorboat. Given the recent surge in gold prices, the jump in silver is no surprise, and silver prices could well continue to rise in the near term.

US Auto Industry: General Motors today said it will cut its electric-vehicle manufacturing capacity and take a $1.6-billion charge against it as demand falls in response to reduced government subsidies and regulatory requirements. While companies across the industry look forward to reduced regulatory burdens under the new US administration, the charge is a reminder that policy changes could also generate at least short-term adjustment costs that could affect stock and bond prices.

German Defense Industry: Defense firm Thyssenkrupp said it will spin off its Marine Systems warship business on Monday, when the shipbuilder has its initial public offering on the Frankfurt stock exchange. Thyssenkrupp will retain a 51% stake in the company, while the rest will be floated to the public.

• The IPO shows that Thyssenkrupp is trying to take advantage of the continuing frenzy for European defense stocks.
• As we’ve noted many times before, growing concern about Russian territorial aggression and questions about US defense commitments continue to spur European countries to boost their defense spending, creating new opportunities for European defense firms.

German Labor Policy: The government of center-right Chancellor Merz reportedly plans to introduce a measure that would allow German pensioners to work and earn up to 2,000 EUR ($2313) a month tax-free. The new “active pension” plan is designed to address the country’s severe labor shortages as birth rates continue to fall, and European governments clamp down on immigration. However, it’s not clear whether the new program will be effective enough to boost German companies’ growth prospects.

Russia-NATO: Officials at the North Atlantic Treaty Organization say the Russian navy has sharply reduced its presence in the Mediterranean Sea in recent months, likely because of resource constraints amid the continued fighting in Ukraine and a need to put more focus on the Arctic and Baltic Seas. Despite widespread concern about Russian territorial designs on Central and Western Europe, the development suggests the threat is not necessarily acute, at least as long as Russian forces remain bogged down in their invasion of Ukraine.

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