Fed Cuts Rates Amidst US-China Trade Truce as Big Tech's AI Spending Dominates Earnings
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Federal Reserve Cuts Rates But Signals Caution
The U.S. Federal Reserve has implemented its second consecutive interest rate cut, lowering the benchmark rate by 25 basis points to a range of 3.75% to 4.00%, its lowest level in three years. The move was accompanied by an announcement to end its Quantitative Tightening (QT) programme, which has seen the central bank shrink its balance sheet by $2 trillion since 2022.
Despite the widely anticipated cut, Fed Chair Jerome Powell tempered market optimism in what has been termed a “hawkish cut.” He described the adjustment as a “neutral recalibration” and explicitly cautioned that a further rate cut in December “is not a foregone conclusion, far from it.” This created uncertainty, with market odds for a December cut falling from over 90% to around 72% following his remarks.
The decision highlighted a divided committee, with a 10-2 split among policymakers. One member favoured a more aggressive 50-basis-point cut, while another preferred no change at all. Powell noted the central bank is navigating policy decisions with limited information due to delays in official economic data, comparing the situation to “driving in the fog.”
US and China Announce One-Year Trade Truce
At the APEC summit in South Korea, U.S. President Donald Trump and Chinese President Xi Jinping confirmed a one-year extension of their tariff truce, signalling a significant de-escalation in trade tensions. The agreement includes a reduction in U.S. tariffs, halving duties on “fentanyl-related” goods from 20% to 10% and bringing the average tariff rate on Chinese goods down from 57% to 47%.
In return, China has agreed to resume large-scale purchases of American agricultural products and pause its recently imposed export controls on rare-earth magnets for one year. The U.S. will also begin to roll back some export restrictions on certain Chinese technology companies.
High-End AI Chip Controls Remain Firm
Despite the broader agreement, the U.S. has maintained its stringent export controls on high-end semiconductors. President Trump confirmed that relaxing restrictions on advanced AI chips, such as Nvidia’s Blackwell technology, was not part of the discussions. This stance highlights Washington's strategic priority to limit China's access to cutting-edge AI capabilities.
Big Tech Earnings Highlight Soaring AI Spending
Quarterly earnings from major technology firms largely beat analyst expectations on revenue, but the dominant theme was the colossal capital expenditure required to fund the artificial intelligence arms race. Alphabet, Microsoft, and Meta collectively racked up $78 billion in capital expenditures in Q3 and signalled that spending on AI infrastructure will continue to accelerate into 2026, testing investor patience.
Alphabet (GOOGL)
Alphabet announced its first-ever $100 billion quarter, with Q3 revenue reaching $102.3 billion, a 16% year-over-year increase, fuelled primarily by its AI ecosystem. Google Cloud revenue increased 34% to $15.2 billion, and shares jumped over 7% in after-hours trading.
Microsoft (MSFT)
Microsoft posted Q3 revenue of $64.5 billion, a 12% increase, as its Azure cloud platform saw revenue surge 28%. This growth came at a cost, as capital expenditure jumped 89% year-over-year to $34.9 billion, causing shares to slide more than 2%.
Meta Platforms (META)
Meta reported record Q3 revenue of $51.2 billion, a 26% increase. However, the company raised its full-year capital expenditure forecast to between $70 billion and $72 billion and warned that spending would be “notably larger” in 2026. Shares fell around 9% in after-hours trading.
Corporate Layoffs Continue Amidst AI Justification
Several major corporations have announced significant job cuts, often citing the pursuit of efficiency and the growing role of artificial intelligence. Amazon announced 14,000 corporate job cuts as part of a broader plan to eliminate up to 30,000 positions, with CEO Andy Jassy noting that AI will shrink its corporate workforce over time. Similarly, UPS revealed it has cut 48,000 jobs this year, far exceeding earlier estimates.
General Motors also announced it will be laying off workers at several electric vehicle plants, citing a slowdown in that sector. Other companies making cuts include Paramount, Molson Coors, and Target. This trend comes as corporate profits are seeing 15% year-over-year growth, leading to concerns that educated workers are being left behind as companies use AI as a justification for running leaner operations.
Developments in Cryptocurrency
Amidst a shifting macroeconomic landscape, the cryptocurrency sector saw several significant developments indicating growing institutional adoption and maturation. Ethereum infrastructure firm Consensys has reportedly hired JPMorgan and Goldman Sachs to lead a future initial public offering, capitalising on a renewed institutional interest in the sector.
In payments, Western Union announced plans to launch a USD-backed stablecoin on the Solana blockchain in the first half of 2026, aiming to integrate digital assets into its global remittance network. Separately, fintech firm Brale launched a new API designed to bridge traditional banking with on-chain payments, enabling users to instantly mint stablecoins from bank accounts.
In Other News
Nvidia Reaches $5 Trillion Milestone
Chipmaker Nvidia became the first company in history to achieve a market capitalisation of $5 trillion. The milestone was reached partly due to investor optimism regarding the potential for renewed sales to China following the trade truce, even with restrictions on its most advanced chips remaining in place.
OpenAI Reportedly Plans IPO
OpenAI is reported to be laying the groundwork for an Initial Public Offering that could value the company at up to $1 trillion. According to reports, a filing could come as soon as the second half of 2026.
Consumer Sector Shows Signs of Strain
Chipotle and Starbucks both reported that consumers are eating out less often and seeking more value. Chipotle missed revenue expectations and cut its sales outlook, causing its shares to fall significantly. Starbucks' earnings also fell short, though its same-store sales turned positive for the first time in nearly two years.
Hurricane Melissa Hits Jamaica
Hurricane Melissa has struck Jamaica as the strongest cyclone ever to make landfall on the island, prompting a state of emergency. Early damage estimates of $5-16 billion far exceed the $150 million payout from a catastrophe bond designed for such events.
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