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Bloomberg Television1h 34m

US Envoy: Nvidia Affair Shows US Should Stay 'Diligent' on China

Yvonne Man, David Ingles, Monica Hsiao, Zino Helmlinger, Chris Phelan, David Perdue, Stephen Engel, Balaj Penn, Anthony Stevens, Juliana Liu, Xie Feng, Jill Deas, April Hong, Kirk Boudry

Interview, Conference Presentation, Statement

  • US Inflation and Fed Policy Shift

    • US October CPI print came in hotter than expected, with core services inflation remaining elevated, prompting a rapid repricing of interest rate expectations.
    • Fed officials, including Governors Waller and Goolsbee, have signaled the potential for a 50 basis point rate hike in December, reversing previous "insurance cut" assumptions.
    • Market pricing has adjusted from expecting two rate hikes in 2025 to three, with a 12% probability now assigned to a 50 basis point hike at the December meeting.
    • White House Council of Economic Advisors Chairman Celine Phelan stated a 50 basis point hike is premature ("not seeing the whites of their eyes"), though acknowledged rising energy prices have contributed to the recent inflation spike.
    • Analysts note that falling oil prices (down 24% in November) could eventually reverse inflationary pressures, but short-term volatility is expected to persist.

  • AI Sector Valuations and Capital Markets

    • Anthropic is targeting a $1.4 trillion valuation for its upcoming IPO, the largest share sale in history, having raised clarity after initial market jitters suggested a lower $1.1 trillion valuation.
    • Investors are paying premiums of up to 5% on secondary market allocations for Anthropic shares, mirroring the dynamic seen during the SpaceX IPO.
    • SoftBank reported a $3 billion+ write-down on UK data center investments, swinging to a net loss for the quarter and sending its stock down 10% before recovering slightly to a 3% loss.
    • In contrast to SoftBank, CoreWeave's earnings reassured investors, announcing demand capacity booked out until 2027 and citing no impact from US political uncertainty.
    • NVIDIA's market capitalization decline of approximately $1.7 trillion (equivalent to Meta or the entire Dutch stock market) reflects ongoing espionage investigations and broader macro headwinds from rising rates.
    • Alibaba plans to spin off its chip design unit, T-Head, in an IPO aimed at raising $2–3 billion to fund its AI ambitions and reduce reliance on NVIDIA chips.

  • US-China Geopolitics and Trade

    • U.S. Treasury Secretary Scott Bessent confirmed President Trump and President Xi will meet next week in Shenzhen (APEC) and potentially in Miami, emphasizing a goal to "de-risk, not decouple."
    • U.S. Ambassador to China David Perdue stated that the relationship remains "bumpy but on the rise," with five potential summits planned over 15 months to foster engagement.
    • China's State Decree 835 has been actively enforced, with reports of two European companies facing exit bans and criminal investigations for diversifying supply chains away from China.
    • US-China dialogue includes plans for a crisis mechanism regarding AI development and discussions on nuclear proliferation involving Russia, Iran, and Ukraine.
    • The NVIDIA espionage scandal is viewed as a national security flashpoint, though Bessent indicated potential pre-release talks with China regarding AI models.
    • Trump administration policy remains consistent on the "One China" policy, though arms sales to Taiwan have increased by 50% compared to previous administrations.

  • Regional Market Performance

    • Asian equities showed divergence, with Taiwan (TSMC) and Japan (semiconductor supply chain) gaining on strong earnings, while Hong Kong and mainland China underperformed due to rate sensitivity and consumer sentiment.
    • Hong Kong's Hang Seng Index and China A-share indices faced pressure, with rate-sensitive sectors like banking and property falling as Treasury yields spiked.
    • Gold prices dipped near $4,000 per ounce, dragging down mining stocks as real yields rose in anticipation of tighter US monetary policy.
    • Chinese retail markets display a "two-speed" dynamic: prime real estate in Tier 1 cities (Shanghai, Beijing) saw rental growth and high demand, while suburbs faced oversupply and rent declines.
    • Singapore Airlines reported strong Q2 operating profits driven by hedged fuel prices and rerouted cargo demand, though its controversial new business class cabin design sparked public debate.

  • Forward-Looking Statements and Risks

    • Monica Hsiao (Triada Capital) warned that a 30% share of US government debt held in T-bills by 2029 could pressure yield curve stability and duration appetite for hyperscalers.
    • David Savage (Bloomberg MLA Strategist) cautioned that AI growth rates may be slowing month-over-month, posing valuation risks despite strong current earnings.
    • SoftBank management is expected to adopt a more conservative leverage strategy in late 2025 to maintain loan-to-value ratios below their 25% red line.
    • Juliana Liu (Bloomberg Opinion) argued that the NVIDIA scandal may mark the end of the era where American CEOs serve as effective mediators in US-China relations, likely reducing future high-level business diplomacy.
    • The upcoming US midterm elections result in Democratic control of Congress, which is expected to maintain pressure on China trade and increase scrutiny on data centers, though gridlock may limit immediate legislative action.