Mid-week Stocktake.
US stocks closed marginally higher on Wed, 07 May 2025, as investors (a) assessed prospects for planned US-China trade talks and (b) digested the Fed’s decision to hold interest rates steady at its May 2025 FOMC meeting.
By the time market closed for the day: (see above)
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DJIA: +0.70% (+284.97 to 41,113.97).
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S&P 500: +0.43% (+24.37 to 5,631.28).
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Nasdaq: +0.27% (+48.50 to 17,738.16).
Fed Chair Spoke.
Overall market sentiments seemed to focus more on what Mr Powell had to say during post FOMC meeting’s press conference.
Excerpts of what Mr Powell had said:
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Interest rates were in a good place given current condition.
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Public concern over inflation & tariffs is real, but there’s little evidence of major economic impact (so far).
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The tariffs’ shock has not hit yet. adding the Fed is closely monitoring, both sentiment and hard economic data.
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There is just so much about the high degree of uncertainty around the "scale, scope, timing, and persistence" of tariffs, that the Fed don’t know.
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Without knowing, it’s just not clear what the response of interest-rate policy should be.
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The Fed didn’t need to be “in a hurry” as the risks of higher unemployment and inflation had risen.
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As for the tariffs, the central bank will learn more about where they are going to land with each week and month that goes by.
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If the “large increases in tariffs” that have been announced remain at their current levels, they could lead to (a) a slowdown in economic growth, (b) an uptick in long-term inflation and (c) an increase in unemployment.
What Mr Powell covered was nothing new and that left investors with little new insight into the Fed's outlook.
Perhaps, that's a fitting way to describe the current economic moment - uncertain.
This is largely attributed to the Trump’s tariffs being so “disorganized & fluid” - one moment it’s this, next moment it’s that. (see below)
The latest in a series of rollback / exemption could be baby products.
On 07 May 2025, Treasury Secretary Scott Bessent told members of the House Financial Services Committee that tariff exemptions for car seats, strollers, cribs, and other baby supplies that come from China are “under consideration.”
If left unresolved, this could blow up in the current administration’s face because there are about 2.3 million babies born in the US annually.
The +145% tariffs will not go down well with parents. All these uncertainties are extremely exasperating, agree ?
Above chart shows, economic policy uncertainty, as measured by mentions in national news outlets, it has never been this high.
Despite US market future filled with uncertainty brought about by Trump’s tariffs and Fed’s chair Mr Powell’s hawkish tone, there was a glimmer of hope for $NVIDIA(NVDA)$ yesterday. (see below)
On Wed, 07 May 2025, it was reported that the Trump administration plans to revise a set of chip trade restrictions called the “AI diffusion” rule.
What is the AI diffusion rule ?
The rule (proposed during Biden’s last days) organizes countries into 3 different tiers.
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Each tier has different restrictions on whether advanced AI chips (made by Nvidia, $Advanced Micro Devices(AMD)$ and $Intel(INTC)$ could be shipped to country without a license.
The chip restrictions were scheduled to take effect on 15 May 2025.
With the rescind announced, Nvidia spokesman was quick to react as follows:
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Nvidia welcome the Administration’s leadership and new direction on AI policy.
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With the AI Diffusion Rule revoked, US will have a once-in-a-generation opportunity to (1) lead the next industrial revolution, (2) create high-paying US jobs, (3) build new US-supplied infrastructure, and (4) alleviate the trade deficit.
Not to be left out in the shadow, AMD CEO Lisa Su told CNBC:
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US should strike a balance between restricting access to chips for national security and providing access, that will boost the American chip industry.
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NVDA stock price almost flat throughout the day, spiked to a +3.10% high, closing off Wednesday at $117.06 per share.
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Similarly, AMD share price also closed higher on Wednesday at +1.76% or $100.36 per share.
My viewpoints : (mine only)
The current price surge was traders “buying the rumours, selling the news”, agree.
Based on “soon to be invalid” AI Diffusion rule, countries have been banded into the 3-tiers:
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Tier 1 : includes 18 key allies, such as Australia, Canada, Taiwan, the Netherlands, Japan, & South Korea, that have nearly unrestricted access to advanced GPUs.
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Tier 2: has about 120 countries including UAE and Saudi Arabia, face chip limits.
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Tier 3: blocked nations like China, Russia, Iran, & North Korea from accessing advanced US AI chips.
As usual, any announcement from the Trump administration is always short on details.
With Trump gearing up for his Middle East trip from May 13 - 16, will Biden’s canceled “AI diffusion” rule give the UAE and Saudi Arabia a chance to ask for better import deals?
Would Trump be willing to sacrifice US national security “concerns” and make this happen?
After all, if Trump can turn a blind eye to US Defense Secretary sharing detailed attack plans via messaging app Signal, why worry about easing rules to sell AI chips?
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