President Trump’s renewed broadside against the Fed chair yesterday helped push stocks, bonds, and the dollar lower, as gold rose to a record high. Ultimately, it may serve President Trump better, if Jerome Powell remains in his position, so he can be used as a scapegoat for a downturn. It goes without saying, that getting rid of Powell early would exacerbate the market moves already in motion (lower dollar, lower stocks, higher long bond yields, gold up).
Amid the constant ‘will he or won’t he’ commentary, there have been other notable developments, perhaps more significant for markets over the long run. DeepSeek sent shockwaves through the US stock market earlier this year, because it challenged US dominance in AI, and led to growing scepticism about the ROI on the huge capex spending by big tech companies.
The technological milestones achieved by China continue to grow. Reports surfaced yesterday that Huawei is set to begin shipping advanced AI chips as soon as next month. It was also revealed last week that a research team at Fudan University had built the fastest semiconductor storage device ever reported. CATL has now unveiled upgraded battery cells it claims can offer faster charging for electric vehicles than its rival BYD, offering a 520km range from just five minutes of charging time.
The US administration’s claim that China is in the weaker position is being tested severely. Beijing is flexing its control over the minerals supply chain, threatening supply chains across the auto, defence and chip sectors. Chinese state-backed funds are cutting off new investment in US private equity, in response to pressure from the Chinese government.
The 30-year US Treasury yield rose 11 basis points to 4.91% yesterday, as the yield curve steepened sharply. The term premium had been far too low and continues to climb. Rising JGB yields have largely gone under the radar, but the moves in Japan’s superlong bonds have been extraordinary, threatening to put further pressure on the long end of the US Treasury curve. The new chief executive of Norinchukin Bank said in a recent interview that JGBs are now a natural investment target over the medium and long term as yields have risen.
