by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest market-moving deal in the US artificial intelligence industry. We next review several other international and US developments with the potential to affect the financial markets today, including the outlines of a potential US-China trade deal, prospects for a new, market-friendly prime minister in Japan, and the latest on the US government shutdown.

US Artificial Intelligence Industry: Artificial intelligence developer OpenAI and chip designer Advanced Micro Devices (AMD) this morning announced a deal under which Open AI will equip its data centers with gigawatts worth of AMD chips, leading to tens of billions of dollars in new revenue for AMD over the next five years. OpenAI will also get warrants for up to 160 million AMD shares (roughly 10% of the firm) at 1 cent per share, if OpenAI hits certain targets and AMD’s stock price rises.

• The requirement for AMD’s stock to rise doesn’t look like a problem, as its shares are trading approximately 25% richer as of this writing.
• The deal is the latest in a string of AI-related linkups that have further fueled the excitement over AI’s prospects. However, concerns are also rising about excessive exuberance and daisy-chain deals that could ultimately lack economic substance.

China-United States: Bloomberg reported over the weekend that Beijing is pressing the Trump administration to lower national security restrictions on Chinese investment in the US to resolve the current US-China trade war. The proposed deal would involve Chinese firms investing up to $1 trillion in new factories and other industrial facilities in the US. It would also require the US to lower its tariffs on Chinese inputs used in the Chinese-owned facilities built under the deal.

• Other reporting suggests that China is also seeking a commitment from the US to oppose Taiwanese independence under the deal. Such a move would be a fundamental change to the US’s traditional policy of “strategic ambiguity,” under which it doesn’t say how it would respond to a Chinese effort to take control of the island.
• Such a deal might be hard for the US administration to swallow, given that it would likely generate strong opposition from domestic China hawks and could be seen by the public as capitulation to Beijing. It would also pose the risk that massive Chinese investment would allow Beijing to eventually dominate the US economy.
• Still, such a deal could have some positive economic benefits as well. For example, it would likely reduce the risk of a costly, destabilizing war. It could also allow the administration to cut its high tariffs against China and thereby reduce the risk of higher consumer price inflation. It could spur faster re-industrialization in the US. Also, producing more Chinese goods in the US could help rebalance bilateral trade and re-channel Chinese investment from Treasurys into fixed investment.
• If announced, the deal could be a headwind for gold, at least temporarily, while faster US re-industrialization would likely be positive for other commodities. US defense stocks would likely fall in value, but European defense equities would probably be less affected. In any case, such a deal would likely be positive for the broader US and Chinese stock markets.

China-Mexico-United States: Late on Friday, Beijing issued a strong condemnation of Mexico’s 11 on-going anti-dumping investigations against Chinese imports, which it said were masterminded by the US to help crimp China’s economic growth. Importantly, the statement also implicitly threatened to retaliate against Mexico if the probes lead to new tariffs against Chinese goods. Of course, various reports say the US is trying to enlist other countries to constrict Chinese exports. This incident shows how third-party countries can be caught in the crossfire.

Japan: The ruling Liberal Democratic Party on Saturday chose former Economic Security Minister Sanae Takaichi as its new leader, virtually guaranteeing the arch conservative will become Japan’s next prime minister due to the recent resignation of incumbent Shigeru Ishiba. If the Diet approves her as expected, Takaichi would serve out the remainder of Ishiba’s term, which ends in September 2027. Her policies are expected to include being tough on China, supporting big increases in the defense budget, and promoting faster economic growth.

• The prospect that Takaichi would win and return Japan to the pro-market economic policies of former Prime Minister Shinzo Abe has helped boost the country’s stock prices in recent weeks, even though the LDP’s lack of a majority in either house of parliament will make it hard to push through new reforms.
• So far today, Japanese stock prices have surged approximately 4.8%, while the yen (JPY) has weakened about 1.7% to 149.94 per dollar ($0.0067).

Philippines: New reports say the wave of coup rumors that have risen in recent weeks in conjunction with mass anti-corruption protests can be traced to loyalists and influencers aligned with former President Rodrigo Duterte, the chief political rival of incumbent President Ferdinand Marcos, Jr. The coup rumors, claims of foreign interference, and accusations of military disloyalty are increasingly seen as destabilizing, and may potentially set the stage for major disruption in a key US ally and major Asia-Pacific economy.

France: Prime Minister Lecornu resigned today after less than a month in office and less than one day after presenting his proposed government. Lecornu’s departure, driven by difficulties in pushing a vital deficit-cutting budget through parliament, makes him the fourth French prime minister to resign in the last year and the shortest-serving prime minister in the Fifth Republic. Since the move is further evidence of the political chaos in one of the European Union’s biggest economies, the news is weighing heavily today on the euro and on EU stocks and bonds.

Czech Republic: In parliamentary elections at the weekend, the Ano party of right-wing billionaire and former prime minister Andrej Babiš came in first, allowing Babiš to try to form a government and become prime minister again. Although the Ano party supports Czech membership in the North Atlantic Treaty Organization, it is more skeptical of the European Union and wants to reduce the country’s aid to Ukraine while it pursues more conservative economic policies. The result could be reduced aid to Kyiv and more friendly relations with Russia.

US Fiscal Policy: The federal government shutdown appears set to continue in the coming days, as Republican and Democratic leaders look committed to their budget positions, meaning Senate votes on a new funding bill continue to fail due to lack of the 60 votes needed for it to pass. However, President Trump is still holding in reserve his threat to use the shutdown to implement mass firings of federal employees — a move that could substantially worsen the economic impact of the shutdown.

US Labor Market: In a little-noticed development amid the federal shutdown, some 100,000 federal employees who had taken the administration’s deferred buyout deal earlier this year dropped off the federal payroll as of October 1. Another 55,000 or so will go off the payroll in the coming weeks. The newly unemployed workers are expected to add to the increased softness in the US labor market, raising the risk of a near-term economic slowdown despite expectations for faster growth in 2026.

Global Oil Market: The Organization of the Petroleum Exporting Countries and its Russia-led partners said eight of their members will boost their oil output by a modest 137,000 barrels per day starting November 1. The move, led by Saudi Arabia, will likely help keep the global oil market well supplied and keep a lid on prices in the near term, especially if slowing economic growth weighs on demand.

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