by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with what to expect from the FOMC meeting and its market implications. We then examine China’s ban on NVIDIA chips and its potential ripple effects across the global tech sector. Further topics include progress in US-UK trade talks, the evolving situation around a potential TikTok sale, and how Chinese trade restrictions are pressuring EU firms and even forcing some to consider shutdowns. We also include a summary of key recent economic data from both global and domestic sources.

Fed Primer: All eyes are on the imminent FOMC meeting minutes as investors seek to gauge the trajectory of interest rates and the Fed’s assessment of the economy. The market has overwhelmingly priced in a 25 basis point cut, with futures implying a 96% probability. However, mounting evidence of a softening labor market, coupled with lingering concerns over the economic outlook, suggests the central bank may ultimately decide on a more assertive path of rate cuts.

• Federal Reserve officials face a complex economic puzzle. While the labor market is showing clear signs of weakening — with firms slowing hiring due to tariff costs and AI adoption — consumer spending remains remarkably resilient as evidenced by strong retail sales data. This divergence between a softening jobs market and robust consumption is a major challenge for policymakers interpreting the economic environment.
• The confirmation of Stephen Miran, a White House advisor, to the Federal Reserve Board marks a pivotal shift. It breaks a nearly century-old precedent, making him the first sitting White House official on the board since the 1930s. This move is viewed as a notable assertion of executive influence over monetary policy and is expected to shape the Fed’s future decisions.
• Analysts will scrutinize the Fed’s “dots plot” for signs of the White House’s influence on interest rate projections. As the newest governor, Stephen Miran is expected to submit the most dovish dot, aligning with the administration’s previous statements. Furthermore, he will likely advocate for a policy focus that extends beyond the dual mandate of maximum employment and price stability, emphasizing a de facto “third mandate” of managing long-term interest rates.
• We anticipate the Fed meeting will serve as a significant catalyst for markets. In our base case, indications of an aggressive path for rate cuts would be interpreted as a substantial stimulus measure, providing a tailwind for equity assets. A key risk to this view is that the market’s positive reaction may be muted if the cuts are seen as politically influenced.

China Halts Sales: Beijing has ordered its companies to halt purchases of NVIDIA’s AI chips and cancel existing orders, significantly reducing reliance on foreign semiconductor technology. This directive follows recent accusations against the US chipmaker for violating anti-trust laws and comes just a month after regulators flagged its H20 chip as a national security risk. The company’s share fell pre-market following the report.

• China’s crackdown on NVIDIA chip purchases accelerates its push for semiconductor self-sufficiency, a key front in its rivalry with the US to develop superior AI technology. With domestic technology improving, Beijing is now urging firms to source more AI chips from local suppliers.
• Huawei is reportedly developing chips that rival those of NVIDIA in performance, signaling a major advancement in China’s semiconductor capabilities. This progress is complemented by breakthroughs in producing domestic chipmaking equipment comparable to that of leading US suppliers.
• China’s crackdown on US tech is a major market concern, particularly for growth companies in the S&P 500. These firms often rely heavily on foreign revenue, making them vulnerable to such restrictions. The impact is twofold: immediate earnings are threatened, and future growth is jeopardized by the loss of access to the critical Chinese market.
• While we maintain a positive outlook on the tech sector’s momentum, bolstered by supportive tax incentives for capital expenditure, we do believe a strategic allocation to value stocks offers crucial diversification and resilience during periods of market uncertainty.

US-UK Talks: The US and UK will hold talks to discuss trade and investment, with US companies expected to announce billions in new technology infrastructure investments in the UK. This initiative aims to deepen the bilateral relationship and promote the adoption of US technology. As outlined in our latest geopolitical report, we suspect that the US is moving away from a traditional free trade policy toward a “free technology” policy, using tech access rather than consumer market access to cement alliances and keep partners aligned.

US Investments: The US is in talks to establish a fund, in partnership with investment firm Orion Resource Partners, to finance overseas mining projects. This initiative would target the extraction of critical minerals like copper and rare earths, which are essential for technology manufacturing. The move exemplifies the US government’s growing collaboration with the private sector to play a more active role in the economy.

TikTok Sale: The president signed a new order extending the deadline for Chinese companies to divest from the US, despite signs of progress in negotiations. Under a White House-brokered deal, TikTok would be acquired by a consortium including Oracle Corp., Andreessen Horowitz, and the private equity firm Silver Lake Management LLC. While it remains unclear whether Beijing will approve the deal, early indications suggest that China wants the app to keep its Chinese algorithm.

USMCA Talks: The US is set to hold trade discussions with its North American partners as they prepare for a review of the regional USMCA trade agreement next year. We suspect the conversations will primarily focus on ensuring the countries agree to create a united trade policy, particularly toward China, but possibly regarding other nations as well. Given how much trade is conducted between the three countries, any sign of trouble or disagreement could lead to renewed concerns of trade uncertainty.

China’s EU Crackdown: European firms face potential shutdowns due to a shortage of critical rare earth elements that are essential for production. This crisis follows China’s decision to restrict exports of these vital resources, a move triggered by global trade tensions and US tariffs. Although China and the EU reached an agreement to maintain Europe’s access, numerous member states have complained that significant supply issues persist. We believe this ongoing resource scarcity threatens to negatively impact market sentiment toward the global tech sector.

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