From the studio

Video: Paul Donovan on FOMC and Trump-Xi trade talk takeaways (7 min)
Video: CIO's asset allocation chiefs on bull markets and tech euphoria (10 min)
Podcast: What’s next for Chinese equities and the USD? (12 min)

Thought of the day

US equities are on track to end the week in the green as a fresh round of tech earnings has boosted investor sentiment, while the meeting between US President Donald Trump and Chinese leader Xi Jinping resulted in a one-year extension to the temporary trade truce between the world’s two largest economies. Nasdaq futures are up 1.1% ahead of the US market open on Friday, despite a 1.6% drop on Thursday.

Apple reported healthy iPhone demand, while Amazon’s 20% revenue growth in its cloud business marked the fastest pace in nearly three years. Amazon also projected increased capital spending next year, joining Alphabet, Microsoft, and Meta in raising their capex amid broad-based demand for AI and its infrastructure.

Meanwhile, President Trump and President Xi agreed to step back from new threats and ratchet down tensions this week in their first face-to-face meeting in six years. Trump described the meeting in South Korea as “amazing,” while Xi in state media was quoted saying “conversation is better than confrontation.” Key initial outcomes include concessions around fentanyl, rare earth export curbs, soybean purchases, and potential state visits next year.

While no formal deal was signed, a modestly positive outcome on this US-China risk catalyst may be sufficient for global markets, adding to a positive backdrop for stock rallies in the US and China that have been underpinned by strong AI demand and innovation.

Evidence of AI monetization should help ease investor concerns over spending. Amazon’s cloud revenue growth followed similar sequential acceleration seen at Alphabet and Microsoft, underscoring strong AI demand and the potential of AI monetization. In fact, Amazon CEO Andy Jassy said he believes its cloud business “can continue to grow at a clip like this for a while,” and Chief Financial Officer Brian Olsavsky said AI is “a massive opportunity with the potential for strong returns on invested capital over the long term.” Separately, while there are concerns over how big tech companies are financing their expanding AI spending, we note that these firms have strong cash positions and healthy balance sheets. Without taking any single-stock views, we continue to believe that higher capex should drive further AI momentum, and we are encouraged by rising AI adoption and robust cloud growth.

A US-China détente should deliver some stability in sentiment. While the talks may not have yielded a grand bargain, the extension of tariff exemptions, the halving of fentanyl tariffs, and the suspension of several new punitive policies across sectors like rare earth and shipping suggest a modest improvement for US-China relations compared to the state of play in early October prior to the latest escalation. Ahead of the Trump-Xi meeting, Reuters confirmed China made its first substantial purchase of US soybeans in years, addressing a major White House complaint. A proposed 2026 calendar with at least two Trump-Xi in-person engagements should also encourage a more stable and predictable trade relationship going forward, in our view. At the same time, we do not discount the reality that previous negotiation rounds have seen promising starts followed by setbacks.

China’s tech drivers remain intact despite absence of NVIDIA chip talks. The US appears to have maintained its tech export curbs, particularly on advanced semiconductors, with Trump clarifying any AI chip deal was not about the more advanced NVIDIA Blackwell chips. There has been no talk of efforts to ease controls on advanced semiconductor manufacturing equipment, either. But we believe the encouraging trade progress and renewed bilateral dialogue between Washington and Beijing could catalyze a sustained rerating of Chinese equities. Structural drivers for the country’s tech sector, such as AI innovation, cloud momentum, and chip localization, remain intact, and we expect earnings growth of 37% in 2026.

So, while not everything is resolved and the durability of this truce remains to be seen, the confirmation of a more cordial US-China relationship is a welcome development, in our view. We maintain our Attractive view on both US and Chinese equities; investors who are underallocated should consider adding exposure, especially to transformational innovation themes such as AI, Power and resources, and Longevity, as well as to China’s tech sector.