Washington Taps AI Boom as Nvidia and AMD Agree to Revenue-Sharing Deal on China Sales

Economic

Summary:

Nvidia and AMD will pay the US government 15% of their China-derived chip revenues in exchange for export licenses, underscoring how AI supply chains have become a strategic and financial lever in US trade policy....

AI Momentum Lifts US Markets

The US equity market ended last week on a strong note, with the Nasdaq Composite gaining 0.98% to a record close and the S&P 500 finishing just below its all-time high. The rally was led by AI-related optimism, as semiconductor firms continue to anchor investor enthusiasm. Nvidia’s stock rose over 1% Friday, helping to extend a winning streak fueled by expectations that AI adoption will sustain corporate earnings growth.

In a rare move blending trade policy with revenue capture, Nvidia CEO Jensen Huang and AMD executives met with President Donald Trump at the White House, reportedly agreeing to remit 15% of their Chinese chip sales to the federal government. In exchange, both companies will receive licenses to resume shipments to China, particularly for AI-focused products such as Nvidia’s H20 chip. This arrangement highlights the US administration’s intent to transform export permissions into a direct fiscal asset, while retaining leverage over high-performance semiconductor flows.

Security Concerns and Market Perception

The deal comes amid Chinese state media claims that Nvidia’s H20 AI chips pose national security risks, including alleged “remote shutdown” functions an allegation Nvidia has firmly denied. The company’s rebuttal appears aimed at safeguarding its China market presence while mitigating reputational damage at a sensitive point in US-China trade talks. Investors so far have reacted positively, viewing the revenue-sharing arrangement as a manageable cost for access to a critical growth market.

While AI remains a major driver for market sentiment, attention is now turning to macroeconomic indicators that could influence the Federal Reserve’s policy path. This week’s data calendar includes Tuesday’s Consumer Price Index and Thursday’s Producer Price Index, alongside retail sales figures. These readings will provide insight into inflation pressures and consumption trends, key inputs for determining whether the Fed will proceed with a widely anticipated rate cut in September.

Parallel to US policy developments, SoftBank founder Masayoshi Son is deepening his AI bets, declaring that artificial superintelligence AI 10,000 times smarter than humans could emerge within a decade. Son, whose early investment in Alibaba became one of the most lucrative in tech history, is positioning SoftBank through acquisitions and funding rounds to be at the core of the next technological leap. This aligns with the broader market narrative that AI will not only redefine industries but also recalibrate geopolitical and economic strategies.

Source: CNBC

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Economic

Leadership Crisis and Policy Paralysis

Prime Minister Shigeru Ishiba’s political standing has been weakened by his party’s poor performance in recent upper and lower house elections, sparking calls from within the Liberal Democratic Party (LDP) for a leadership change. While Ishiba has resisted resignation, the LDP is weighing a rare leadership race that could occur as early as September if party lawmakers and regional leaders agree. The timing is critical, as an early contest would allow a new administration to prepare a fiscal package to counter the economic impact of US tariffs, whereas a delay until next year could interfere with the budget drafting process.

Japan’s fiscal calendar requires the Ministry of Finance to collect spending requests in August and finalize a draft budget by late December for the April fiscal year start. Any failure to pass the budget in time could necessitate a stop-gap plan, leading to delayed expenditures and potential economic drag. Given the LDP-led coalition’s loss of control in both parliamentary chambers, passing legislation now depends on opposition support something opposition leaders have ruled out unless Ishiba steps down. This interparty deadlock risks slowing fiscal decision-making at a time when policy stability is critical.

Implications for the Bank of Japan

Political instability is also weighing on the Bank of Japan’s (BOJ) rate-hike outlook. While few anticipate a policy shift at the September meeting, analysts consider October, December, or January as possible windows for tightening once more data on the effects of US tariffs is available. Ishiba’s reputation as a fiscal conservative had aligned with the BOJ’s goal of gradually exiting ultra-loose monetary policy, particularly since inflation has remained above the 2% target for more than three years.

However, the political fallout from his electoral defeat increases the likelihood of demands for expanded government spending and accommodative monetary policy. Opposition figures, including reflationist lawmakers like Sanae Takaichi, have previously criticized rate hikes and could influence the policy debate if they enter the leadership race. This dynamic creates a potential deterrent for the BOJ, which may prefer to delay tightening to avoid being pulled into political controversy.

The relationship between Japan’s political turbulence and economic policy is increasingly intertwined. Leadership uncertainty threatens to delay both fiscal stimulus planning and monetary normalization, while the external shock of US tariffs compounds these risks. For the BOJ, the safest course may be to maintain a “wait-and-see” stance until political clarity emerges, prioritizing stable inflation management over immediate rate adjustments. The prolonged uncertainty, however, could undermine investor confidence and complicate Japan’s efforts to balance growth support with inflation control.

Source: Reuters

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Economic

The latest Bank of America monthly fund manager survey reveals that 45% of the 169 participating managers who collectively oversee $413 billion in assets identified “long Magnificent 7” as the most crowded trade in August. This elite group of US technology giants, including Nvidia and Microsoft, has reclaimed the top position from earlier this year, last holding it in March. The resurgence follows a strong rebound from the tariff-driven selloff in April, fueled by robust quarterly earnings and renewed investor confidence in the tech sector’s growth outlook.

Survey data indicate a notable improvement in market sentiment. Only 5% of respondents now expect a “hard landing” scenario, defined as a sharp economic slowdown, suggesting a growing belief in a softer economic adjustment. The proportion of managers overweight global equities rose to a net 14%, marking the highest reading since February, though it remains well below the net 49% overweight position recorded in December. This suggests that while risk appetite has improved, positioning is still more cautious than late last year.

The correlation between big tech’s earnings momentum and investor allocation patterns is evident. Strong results from key Magnificent 7 members have reassured markets about their ability to sustain profitability despite macroeconomic headwinds, encouraging a rotation back into equities after a period of defensive positioning. Improved global growth expectations are reinforcing this trend, providing a supportive backdrop for equity-heavy portfolios.

Source: Reuters

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Economic

A Strategic Pivot in Energy Investments

A significant realignment is underway in hedge fund energy strategies. Data from Hazeltree, analyzed by Bloomberg Green, show that since October 2024 many equity-focused hedge funds have shifted to net short positions on oil stocks while cutting back shorts on solar equities. This reverses the trend that had dominated since 2021, when oil bets were predominantly long and solar was a frequent short target. The dataset covers about 700 funds managing roughly $700 billion, representing around 15% of global hedge fund assets.

The shift corresponds with two market developments: a perception that solar and wind valuations have stabilized, and concerns over the oil sector’s supply-demand balance. Portfolio managers note that these developments are occurring alongside OPEC+ members increasing output to defend market share, a pattern historically associated with downward pressure on prices. The correlation between higher supply, slowing demand in the US and China, and the repositioning in hedge fund strategies is evident, as funds anticipate weaker oil prices into 2026.

Hedge funds’ skepticism toward oil is underpinned by expectations that global inventories will continue to rise through late 2025. In the US, the Trump administration’s push to increase domestic supply in order to lower prices has generated industry discontent. The Dallas Fed’s July survey captured sentiment from oil executives describing the administration’s implied $50-a-barrel target as unsustainable and warning that volatility from trade policy could force rig shutdowns. These policy signals interact with macroeconomic indicators such as slowing global growth to create a less favorable investment case for oil equities.

Renewables Recover as Investment Climate Improves

While oil sentiment has soured, solar and wind are regaining investor confidence. Net short positions in the Invesco Solar ETF fell to just 3% in June, their lowest since April 2021, and wind stocks tracked by the First Trust Global Wind Energy ETF saw net long positions dominate in early 2025. In China, the Solactive Select China Green Energy Index has rebounded 19% from its April low as overcapacity concerns ease. This trend appears linked to the growing expectation that AI-driven energy demand will accelerate renewable deployment, with BloombergNEF forecasting that renewables will account for over half of additional generation capacity by 2035.

Despite the Trump administration’s rollback of Biden-era subsidies leading to over $22 billion in canceled or delayed US clean energy projects some fund managers view the policy changes as reducing uncertainty by clarifying long-term rules. The final $3.4 trillion “One Big Beautiful Bill” budget preserved support for utility-scale solar, and domestic production safeguards proved more robust than anticipated. This partial policy alignment with green sectors has coincided with an 18% rise in the S&P clean energy index since April 2, contrasted with a 4% decline in oil company stocks over the same period.

Hedge funds remain more short than long on the KraneShares Electric Vehicles and Future Mobility Index ETF, a stance consistent since 2021 due to China’s competitive dominance. However, net shorts have dropped to a multi-year low, reflecting recognition of robust EV growth. BloombergNEF projects EV sales to increase 25% in 2025, with potential to comprise 40% of vehicles on the road by 2040, displacing 19 million barrels of oil per day. This anticipated demand shift aligns with the broader strategic view that sustained global economic growth will be inseparable from expanding low-carbon energy capacity.

Source: Bloomberg

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Economic

Stocks

Asian Markets React to Tariff Deadline

On Monday, Asian equities moved higher as investors awaited US President Donald Trump’s decision on whether to increase tariffs on Chinese goods, with the truce from earlier this year set to expire. Trading was muted in Japan and Thailand due to public holidays, but the Hang Seng in Hong Kong advanced 0.2% to 24,908.37 and the Shanghai Composite gained 0.5% to 3,653.50. The Australian S&P/ASX 200 rose 0.3% to 8,831.40, while South Korea’s Kospi was largely unchanged at 3,210.76.

The current pause in triple-digit tariffs, agreed in May for a 90-day period to facilitate negotiations, is set to end on Tuesday. Talks last month in Stockholm concluded without a definitive statement from Trump on whether the truce would be extended, leaving market participants uncertain. This uncertainty appears to correlate with cautious trading activity in several regional markets, as investors weigh the potential disruption to trade flows and economic growth.

Wall Street Strength Supports Sentiment

Gains in Asian markets followed a strong session on Wall Street. On Friday, the S&P 500 rose 0.8% to 6,389.45, just below its record high, while the Dow Jones Industrial Average climbed 0.5% to 44,175.61 and the Nasdaq advanced 1% to 21,450.02. Technology companies played a central role in driving US equities higher, with Nvidia up 1.1% and Apple surging 4.2%. The relationship between these gains and Asian market optimism is likely linked to cross-border investment sentiment and global supply chain exposure, particularly in the tech sector.

Corporate earnings results also provided upward momentum. Gilead Sciences gained 8.3% after posting results that exceeded forecasts and raising its earnings guidance, while Expedia rose 4.1% on similarly strong figures. However, some firms warned that existing tariffs could pressure future profitability, a consideration that ties directly to the ongoing US-China trade policy uncertainty.

Market Risks and Policy Outlook

While equities benefitted from earnings strength, risks remain from trade tensions and shifting monetary policy. The US Federal Reserve is scheduled to meet in September, with markets broadly anticipating a 0.25 percentage point rate cut following signs of economic softening. The Fed’s dual mandate of price stability and maximum employment underpins its policy path. Lower interest rates can stimulate growth and asset prices, but could also contribute to renewed inflationary pressures, which would be influenced by any tariff-driven cost increases.

Investors are also awaiting US inflation data at both consumer and wholesale levels, along with retail sales figures, which will provide additional signals on economic health. Concerns about slowing employment growth could weigh more heavily on the Fed’s decision-making than inflation risk, especially if trade uncertainty intensifies.

Oil prices retreated in early Monday trading, with US benchmark crude down 38 cents to $63.50 per barrel and Brent crude falling 31 cents to $66.28. The US dollar edged lower against the Japanese yen to 147.46 from 147.62, while the euro strengthened to $1.1673 from $1.1650. These moves appear linked to investor positioning ahead of the tariff deadline, reflecting a cautious stance in both commodities and currency markets.

Source: AP

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Economic

A Political and Economic Push Ahead of Tariff Deadline

The proposal comes just before the August 12 expiration of the current U.S.–China tariff truce. While the Trump administration has hinted at a possible extension, it is unclear whether increased soybean purchases are a formal condition for prolonging the agreement. Trump’s message emphasized both U.S. farmers’ production capacity and his expectation of rapid fulfillment should China agree.

China is the world’s largest soybean importer, accounting for over 60% of global shipments. In 2024, it imported roughly 105 million metric tons about 22 million tons from the U.S. and more than 74 million from Brazil. Quadrupling U.S. imports would mean sourcing the majority of China’s soybeans from America, an outcome agricultural experts call improbable.

Market Reaction and Trade Realities

Following Trump’s post, the most active soybean contract on the Chicago Board of Trade rose 2.13% to $10.08 per bushel, after trading flat earlier in the day. However, market participants note that price support could be temporary without concrete purchase commitments from Beijing.

Johnny Xiang of AgRadar Consulting stressed that China’s diversification strategy shifting procurement toward South America makes such a large-scale U.S. purchase unlikely. Under the Phase One trade deal of Trump’s first term, China pledged to significantly boost U.S. agricultural imports but failed to meet targets.

China’s Strategic Supply Shift

This year, China has not booked any U.S. soybeans for the fourth quarter, heightening concerns for American farmers as the harvest season nears. Instead, Chinese feedmakers have been testing soymeal imports from Argentina, seeking lower-cost alternatives amid fears of supply disruptions. Reuters reports that three Argentine soymeal cargoes have already been purchased.

Even Rogers Pay of Trivium China interprets these moves as signals that Beijing may bypass U.S. soybeans entirely in the coming months. Without Chinese demand at scale, the U.S. soybean industry faces the challenge of finding alternative buyers, none of which match China’s purchasing volume.

Source: Reuters

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James Whitman

Political

US Treasury Secretary Scott Bessent said the new Federal Reserve (Fed) chair should be someone "who can examine the whole organisation" as the Fed's mission has included so many things outside of monetary policy and has put its independence at risk, Japan's Nikkei newspaper reported.

"It's someone who has to have the confidence of the markets, the ability to analyse complex economic data," Bessent told the Nikkei in an interview, when asked about the qualities the new Fed chair should possess.

"And it's also someone who wants to be, I think, very attuned to forward thinking, as opposed to relying on historical data," Bessent was quoted as saying in the interview, which was conducted in Washington on Aug 7 and published on Monday.

A source has told Reuters that Bessent is leading a search for a successor to Fed chair Jerome Powell, with an expanded list that includes a long-time economic consultant and a past regional Fed president.

When asked about President Donald Trump's calls for the Fed to cut interest rates, Bessent said while Trump makes his opinion known, "at the end of the day, the Fed is independent".

On exchange rates, Bessent said his administration's definition of a strong dollar was not about the price on the screen, which was set by the market, but the relative price against other currencies, according to the Nikkei.

"The strong dollar policy is to have policies that continue to keep the US dollar the reserve currency. And if we have good economic policies, then the dollar will naturally be strong," Bessent was quoted as saying.

Bessent has overseen US discussions with Japan on exchange rates with his counterpart Katsunobu Kato. At their meeting held on the sidelines of a G7 gathering in May, the two agreed that the dollar-yen exchange rate at the time reflected fundamentals.

In its exchange-rate report to Congress in June, the US Treasury Department said the Bank of Japan (BOJ) should keep tightening monetary policy, which would support a "normalisation of the yen's weakness."

"I think that as long as the BOJ focuses on economic fundamentals, inflation and growth, the currency will take care of itself," Bessent said.

"So, I believe that governor [Kazuo] Ueda and the BOJ board is targeting an inflation outcome, not a currency outcome," he was quoted as saying.

The BOJ last year exited a decade-long, massive stimulus and raised short-term interest rates to 0.5% in January on the view Japan was close to durably hitting its 2% inflation target.

But it has stressed the need to tread carefully in raising rates further, with the slow pace of hikes seen by some analysts as a factor that has kept the yen low against other currencies.

While inflation remains above the BOJ's 2% target for more than three years, Ueda has called for the need to scrutinise the impact US tariffs could have on Japan's fragile economy.