Fed decision; Trump-Xi meeting; mega-cap tech earnings - what’s moving markets

Adam

Summary:

U.S. markets are steady as the Fed cuts rates but signals caution, Trump and Xi ease trade tensions, tech giants boost AI spending, and OpenAI reportedly targets a massive 2027 IPO.

U.S. stock futures are mostly subdued following a deluge of key events around the world. The Federal Reserve slashes interest rates again, but flags that another cut in December is not a certainty. President Donald Trump calls a face-to-face meeting with counterpart Xi Jinping regarding a tense U.S.-China trade relationship as a "12 out of 10, with 10 being best.” A slew of mega-cap technology players outline further massive spending on artificial intelligence and ChatGPT-maker OpenAI is reportedly eyeing going public in 2027.

Futures muted

U.S. stock futures were hunting for direction on Thursday, as investors digested a mixture of key central bank interest rate decisions, high-profile geopolitical developments, and big-name U.S. tech sector earnings.

By 03:43 ET (07:53 GMT), the Dow futures contract had dropped by 26 points, or 0.1%, S&P 500 futures were mostly unchanged and Nasdaq 100 futures had slipped by 12 points, or 0.1%.

The main averages on Wall Street notched a mixed close on Wednesday, with the blue-chip Dow Jones Industrial Average down 0.2% and the benchmark S&P 500 flat, reflecting some caution following a Fed meeting featuring an interest rate cut and uncertainty around further reductions this year.

But the tech-heavy Nasdaq ticked up 0.6%, bolstered by Nvidia’s historic run that has made the artificial intelligence-darling the first company to reach a market valuation of $5 trillion.

Analysts were also weighing a bevy of third-quarter earnings, including better-than-anticipated income from industrial bellwether Caterpillar. Shares in the group spiked 11.6%.

Fed slashes rates

The Fed lowered interest rates by 25 basis points to a range of 3.75% to 4% as expected on Wednesday, although the outlook for the trajectory of borrowing costs in the near-term remains mired in a fog due to a dearth of new economic data during an ongoing federal government shutdown.

Policymakers showed division in their October decision. Fed Governor Stephen Miran -- an appointee of President Trump, who has long badgered the central bank to quickly and deeply cut rates -- called for a bigger 50-basis point reduction, while Kansas City Fed President Jeffery Schmid unexpectedly voted to leave borrowing costs unchanged.

Speaking in a post-earnings press conference, Fed Chair Jerome Powell flagged that another similarly-sized rate drawdown was "far from" a foregone conclusion at the central bank’s next gathering in December. Following the comment, traders brought down their bets on a rate cut at the meeting to a probability of 71%, down from 90% earlier.

Powell also announced the end of the Fed’s drive to diminish its holdings of Treasuries and mortgage-backed securities, a process known as quantitiative tightening, because of recent signs of stress in overnight lending markets.

Beyond the Fed, other central banks across the world are in focus on Thursday. The Bank of Japan, wary of the impact of elevated U.S. tariffs and facing domestic political changes, kept its policy settings unaltered, but reiterated a promise to continue ratcheting up borrowing costs should the economy move in line with its projections. Elsewhere, observers are predicting that the European Central Bank, buoyed by indications of relatively tepid inflation and resilient growth, will leave rates steady as well despite a mercurial U.S. trade policy.

Trump-Xi meeting

That spotlight on American tariff policy shone bright once again on Thursday. This time, the focus was on the South Korean port city of Busan, where Trump and Xi held a rare face-to-face meeting.

Trump described the first in-person talks between the two leaders in six years as "amazing," saying that the U.S. would immediately bring down levies on Chinese goods.

In exchange, Trump said Beijing had pledged to help crack down on the flow into the United States of the chemicals used to make the illegal drug fentanyl, and agreed to pause controls on exports of rare earth minerals -- a sector, crucial for industries like electric vehicles and semiconductors, that China dominates. China agreed to buy "tremendous amounts" of U.S. soybeans and other farm products "starting immediately" as well, Trump said.

The Chinese Commerce Ministry later added that the halt to expanded rare earth restrictions would last for a year, and said both sides had reached a consensus over fentanyl cooperation and agricultural trade.

However, Trump said there were no discussions about Nvidia’s cutting-edge Blackwell AI chip, even after he suggested in the build-up to the meeting that the topic could come up. Instead, he appeared to indicate that the future of Nvidia’s presence in China, a $50-billion chip market, is ultimately in the company’s hands.

Stock markets were relatively subdued following the 90-minute meeting. Analysts at Vital Knowledge said "the deliverables don’t really alter the status quo" of U.S.-China trade relations "dramatically."

Meta, Alphabet, and Microsoft report

Traders were also pouring through a slate of mega-cap tech earnings and looking ahead to even more after the closing bell in the U.S. later today.

Shares of Instagram-owner Meta Platforms sank by more than 7% in after-hours dealmaking after the social media giant said it would "aggressively" push to increase its spending to support its pursuit of AI that can surpass human intelligence, fueling investor worries over the eventual returns on these multi-billion dollar investments. Quarterly net income also missed expectations, reflecting a tax liability from Trump’s signature budget bill, although revenue was at an all-time peak.

Google-parent Alphabet’s third-quarter revenue reached a record high as well, while net profit soared 33% versus a year ago to roughly $35 billion, as strength in its cloud computing and digital advertising operations underpinned its own proposals for sky-high AI expenditures. Shares moved up by 7% in extended hours trading.

Cloud and AI services bolstered Microsoft too, with the software giant even saying that it is racing to keep up with runaway demand, notably by doubling its data center footprint over the next two years. As a result, AI spending during the current fiscal year will likely be greater than Microsoft previously estimated. Shares edged down by a little more than 2% after-hours.

All these updates come as technology executives, investors and analysts have begun to raise concerns that the heavy spending could inflate a potential AI bubble reminiscent of the dotcom boom in the 1990s.

More announcements on capital expenditures are probably ahead on Thursday, when e-commerce giant Amazon and iPhone-maker Apple report their own results.

OpenAI seen preparing 2027 IPO at $1 trillion valuation - Reuters

OpenAI is preparing for an initial public offering that could value the company at as much as $1 trillion, Reuters reported, citing three people familiar with the matter.

The AI startup will seek to raise at least $60 billion from the offering, and is targeting a filing by the second half of 2026 and a listing in 2027, the Reuters report said. The reported IPO stands to be the biggest in the world, and could give OpenAI CEO Sam Altman the capital needed to carry out his ambitious AI agenda.

Known for its ChatGPT chatbot, OpenAI has committed hundreds of billions of dollars in spending on AI chips and data center infrastructure, which it says is aimed at its long-term goal of achieving AI that is comparable to human intelligence.

Earlier this week, the group reached an agreement with top backer Microsoft which will allow it to transition into a for-profit entity.

Source: investing

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