A.I. Driving China Rally While NVDA Faces Headwind, FOMC "Question Marks" Remain

Economic Overview - China's economy is slowing, with weaker than expected economic data for August showing retail sales, industrial production, and property investment all missing estimates [4] - Exports from China remain relatively strong, up 4% year-over-year, despite a significant drop in shipments to the US, as China offsets this with increased shipments to other regions [5] - The Shanghai Composite has recently recaptured levels not seen in 10 years, indicating some market recovery [5] Market Dynamics - Earnings expectations are being cut, but stock gains are occurring due to expanding valuations driven by excitement around AI, with the three largest internet companies increasing capital expenditures by 60% this year [6] - Institutional investors are moving away from low-yielding bonds, with the 10-year Chinese government bond yielding just 1.8%, and reallocating into stocks that are still relatively inexpensive at 12 times next 12 months earnings [7] US-China Relations and Trade - There is ongoing speculation about a potential trade deal between the US and China, with the deadline for negotiations pushed to November 10th [17] - China's ability to maintain strong supply chains makes it challenging for companies to relocate manufacturing, despite the 30% increase in tariffs on China [18] Corporate Developments - The Nvidia anti-monopoly probe is raising concerns about headline risks for US companies operating in China, as China aims for greater self-sufficiency [15][16] - Major companies like Apple, Nvidia, and Tesla are significantly impacted by the dynamics of the Chinese market [19]