Aurelia Butler

US share prices staged a sharp rebound this week on the announcement of a rapprochement between the US and China on trade barriers. By the time markets closed on Tuesday, the S&P 500’s losses since the start of the year had been wiped off. That followed news the US had cut proposed tariffs on Chinese goods from 145 per cent to 30 per cent for 90 days, and some better than expected inflation data. The news changes very little, however. Many investors have recognised that diversifying from US dollar and equities exposure makes some sense, especially given the muted rebound in the US dollar and the rising long bond yields in the US.Investors have watched the US president issue important and potentially damaging trade policies against the country’s third-largest trading partner before reversing course, all within roughly a month. They may also be questioning the superiority of America’s capital markets.Erik Knutzen, co-chief investment officer on multi asset strategies for Neuberger Berman, an investment group, says the rollback of the highest tariffs still means current US trade policy is that of the 1940s — when rates were around 10 per cent — rather than the disastrous, higher ones of the 1930s.But he adds: “We don’t feel the US equity market is the right place [to focus on] now.” Even putting aside the volatility in US trade policy, Trump’s America First policies should accelerate de-globalisation, which could lead to both higher prices for importing countries and slower economic growth for the US and its trading partners. More importantly, investors everywhere are, perhaps for the first time in decades, reconsidering America’s role not just as a defender of peace but as a safe haven for mooring their money. The warning signs have been there. First, the outperformance of US equities has meant that they have come to dominate global indices such as MSCI’s world index, which many institutional investors follow.Second, that dominant position has encouraged flows into the US dollar. By January this year, according to the Federal Reserve’s data series, the dollar was at its strongest versus other currencies since 1985. Finally, the two have come together as a shift towards passive investment in global indices has enabled both equity and currency gains concurrently.In the five years to June 2024, foreign portfolio holdings of US securities — both equities and all types of debt — rose by $10.3tn, according to the US Treasury. A phenomenal change in share holdings alone made up over $8tn of that. The market value of the FTSE All-Share index, by comparison, is $3.5tn.John Butler, macro strategist at asset manager Wellington Management, points out that around 50 per cent of global savings held abroad by investors are currently invested in US assets.“This should result in net capital outflows out of the US and into other markets,” Butler says. “This has structural implications for the US dollar, equity and bond markets.” In a taster of what could happen, foreign capital shifted to Japan’s markets during the turmoil that followed the White House’s tariff announcements on “liberation day” last month. Data for April, released this week by the Ministry of Finance, revealed that foreign investors had bought a net ¥8.2tn ($57bn) of stocks and bonds.That was the most in any month since 2005 and far above average for April. According to one US money manager with large Japanese institutional clients, the shift reflects a pause in buying of the dollar and US Treasuries, rather than a sell-off of US assets. The dollar remains about 8 per cent below its January high.This summer could bring the next test for investors. US inflation and jobs data in the next few months could offer a catalyst for further shifts away from the US dollar, according to Noah Wise, head of global macro strategy at Allspring Global Investments, an asset manager. So far, only US survey data, such as the Institute for Supply Management’s views of purchasing managers in various industries, has shown any significant reaction to the trade tariff increases.Many observers regard these data series as relatively unreliable, or soft. But the hard economic data, such as that on unemployment and industrial production, reflects an earlier period and so far gives no warning signs. Price inflation in the US has remained moderate, a bit above 2 per cent annually.However, by late summer any US hard data releases covering the impact of Trump’s trade policies should be in the public domain. This will come at the same time as the 90-day pause on any additional trade tariffs on China is due to finish. Any poor economic data, combined with another flare-up of the US-China trade disputes, could bring a return of market volatility.© Allan SandersWise points out there is also little immediate prospect that the US Federal Reserve — the Fed — will cut interest rates.“US inflation is above target today and over the next six months is going to move further away from target,” Wise says. “Until hard economic data suggests a clear slowdown, the Fed is unlikely to cut rates.”This does not mean that US capital markets are doomed. Wise believes any talk that foreign investors will discard their holdings in US Treasury bonds is premature.“Could foreign investors take their assets away?” he asks. “I’ve been hearing this for decades. But what are their options? Are they going to pile into [Japanese] or Chinese bonds? Probably not.”That echoes the views of Neuberger Berman’s multi-asset team, who feel that there is insufficient liquidity in Japanese government bonds, particularly long-dated bonds, to shift capital towards them.Something is changing in the US bond market, however. There is evidence that the least price-sensitive holders of US Treasuries have reduced their exposure in recent years. This group includes reserve managers at central banks and sovereign wealth funds, all generally considered to be highly conservative. As of the end of April this group owned just over 36 per cent of all US debt, according to data from JPMorgan asset management and the Federal Reserve. That is near the bottom of the historical range since 2012 and well below the highs of around 47 per cent.For equity investors, this year was the one to seek some diversification. The US market traded at 27 times forward earnings by February this year, not far from a decade high, according to MSCI data. Although analysts have long worried about the persistent valuation premium to other world markets, it was only this year that a catalyst for change became visible. Even after a drop in the market’s value since February, the US market remains expensive internationally. Furthermore, the analysts who estimate earnings for US companies have yet to reduce their earnings expectations significantly. That may be because US economic data so far has not revealed any worrisome trends.But some investors see a change coming.Hugh Gimber, global strategist for JPMorgan Asset Management, says he is finding it hard to reconcile current US earnings estimates with the potential for US growth.“[Previous] analyst consensus estimates of 14 per cent earnings per share growth for 2025 have only slowed to 9 per cent growth,” Gimber says. “I would be expecting low single digits instead.”Equity and currency markets began to reprice the riskiness of US exceptionalism before the tariff announcement.Helen Jewell, BlackRock’s Emea chief investment officer for fundamental equities, points out that the trend started with the news in late January about the greater than expected capabilities of China’s DeepSeek AI model. The news about DeepSeek — a rival to the US’s Open AI — was a reminder that the US had no monopoly on technologies like AI, Jewell says.She believes there is further scope for European equities to be re-rated against the US.“There was a 45 per cent discount on the valuation of European names, which is now 30 to 35 per cent,” she says, comparing European values against those in the US. “Historically, the discount is 20 per cent.”Jewell says that shares in European banks, despite a strong price performance this year, remain cheap. But she predicts that overall the discount may not fully return to the previous average. Trading at around 14 times forward earnings, current European stock values are “about right over time”, she says.“It’s not about European stocks trading cheaply,” she says.JPMorgan’s Gimber, meanwhile, sees potential for more growth in Europe, thanks to growing investment levels.“In 2010-19 European investment was tiny but it is now growing at an 8 per cent clip,” he says. “This is a transformational change, and that has to be a positive for nominal growth and more robust earnings growth for European corporations.”Such sentiments have prompted shifts in some portfolio managers’ allocations. According to the latest edition of Bank of America’s widely followed fund manager survey, investors are more overweight in Eurozone equities compared with the US than at any time since October 2017. Many continental European indices have performed well this year against their US counterparts.Yet the shares of UK small and mid-cap companies have been laggards. The FTSE 250 index, for the 250 companies immediately below the FTSE 100 index of the largest companies, is up only about 6 per cent this year in US dollar terms. The FTSE 100 is up about twice as much.The FTSE 250’s underperformance hints at investor concern about the UK economy’s potential for expansion, rather than the companies’ size. Europe’s Stoxx ex-UK small-cap index has outrun both the FTSE 250 and the FTSE 100, gaining nearly 17 per cent this year.Nevertheless, some portfolio managers are bullish about the UK. The country’s GDP grew by a stronger than expected 0.7 per cent in the first quarter. The growth was the fastest in a year and faster than that seen in Europe. Alec Cutler, who runs nearly $4.6bn in balanced global equity and bond mandates in the Orbis Global Balanced fund, says that President Trump has done the UK and Europe a “massive favour”. He has favoured UK stocks because of their low valuations and holds just 10 per cent of his portfolio in the US.“We’ve been extremely underweight in the US and made up for that in the UK and Europe,” Cutler says.He adds that the processes that Trump has begun should boost demand for steel, aggregates and infrastructure construction groups such as Balfour Beatty. He also holds Keller, which designs and installs specialist foundations for buildings.In addition, having held defence stocks for several years, Cutler has 10 per cent of his portfolio in defence stocks, including Italy’s Leonardo.He insists such shares remain keenly priced if European leaders fulfil their commitments to boost their military spending from the current level, of around 2 per cent of GDP, to around 3 per cent. He has added South Korean, Indian and Japanese defence names more recently.UK equity specialists Julian Cane and James Thorne at asset manager Columbia Threadneedle point out that while UK disposable income has been growing at a low double-digit pace year-on-year, consumer confidence has waned. As a result, the savings rate in the last quarter of 2024 had rebounded to 12 per cent, the highest since the second quarter of 2021. Recently, as a result of tepid earnings growth, the FTSE 250’s trailing earnings multiple has fallen to a historically low multiple of 16 times, while the price-to-book ratio has fallen as low as 1.5.Jewell at BlackRock remains sceptical about the UK, pointing out that 85 per cent of the market capitalisation of the FTSE All-Share index comes from the FTSE 100, suggesting smaller companies are enjoying little benefit from falling interest rates.“Small caps . . . are a very small part of a small global market,” she says. “Valuation expansion is not happening. It’s all earnings driven.”There are wider investor concerns about a number of other areas in the world economy. There is no immediate prospect for a return of investor confidence, despite the past week’s reprieve for China on some tariffs.Some analysts believe the shocks of recent months have still to be fully felt in US share prices.JPMorgan’s Gimber says that prices in the US market are still not discounting for the effects of the rise in trade tariffs, pointing out the continuing uncertainty that many face.“If you’re a large corporation, why would you initiate plans on building a new plant or make major hiring decisions?” Gimber asks. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is director of economic policy studies at the American Enterprise InstituteIf an American president wanted to send the US economy into recession, then driving up tariff rates to levels not seen in over a century and instituting a de facto embargo on China would be a good strategy. Engineering a recession wasn’t Donald Trump’s goal when launching his trade war this spring, but investors were less interested in his motives than in the effects of his policies and the atmosphere of chaos he created. Equity values and the dollar fell, while bond yields rose — and economists went on recession watch.But Trump’s startling decision on Monday to cut the tariff rate on Chinese imports by 115 percentage points sent markets soaring and led economists to lengthen their odds on a downturn. And rightly so. A recession this year is unlikely. Trump seems eager to de-escalate the conflict with China, arguing that he doesn’t wish to “hurt” them and praising his “very, very good” relationship with Beijing. Treasury secretary Scott Bessent was even stronger, saying: “Neither side wants a decoupling.”Trump also seems to want a de-escalation of his trade war more generally. Kevin Hassett, director of the National Economic Council, said last Friday that two dozen trade deals “are this close to being resolved”, which he argued would “be very settling for markets”. And on Thursday Trump was talking up a potential trade deal with India.Another reason for a more optimistic economic outlook is that over the past few weeks, Trump has revealed a willingness to pivot when markets apply adequate pressure. After adverse market reactions, he put his “liberation day” so-called reciprocal tariffs on ice. Despite continuing to grouse about Federal Reserve chair Jay Powell, he has now clearly stated that he has no intention of firing him. As with pressure from markets, Trump’s bad poll numbers will eventually lead him to pivot. Remarkably for a president elected largely to address high prices, his overall net approval rating — under water at minus 10 per cent — now outperforms his rating on trade (minus 15 per cent) and inflation (minus 26 per cent), according to a recent YouGov poll.Even allowing for this week’s dial-down, Trump has increased the US’s average effective tariff rate by around a factor of six since taking office in January. He will become even less popular, including among Republicans, as consumer prices rise. As that cycle unfolds, growing anxiety about the midterm elections means members of his party will increasingly find the courage to speak out against his tariffs. Moreover, the trade war is already taking up most of the political oxygen in Washington, putting at risk his efforts to extend expiring provisions of his 2017 tax cuts. Trump seems certain to lower tariff rates before he allows a Republican electoral wipeout and massive tax increase next year.Another reason for a more optimistic outlook is the US economy’s resilience over the past two months. Last month, employers added more net payroll jobs than in January or February of this year, and the unemployment rate did not increase. The monthly payroll survey is conducted during the pay period that included April 12, which gives us a window into the labour market’s performance in the first half of the month. This is before much of the trade war damage might have occurred but there was no meaningful increase in new claims for unemployment benefit for the weeks ending April 26, May 3 or May 10. Meanwhile, the headline drop in first-quarter GDP growth was deceptive. Last quarter, data from the US commerce department show that real consumer spending grew by 1.8 per cent from the end of 2024. Business fixed investment reversed its fourth-quarter decline, adding 1.3 percentage points to first-quarter growth. Relative to the first quarter of 2024, real GDP grew by a very healthy 2 per cent. To be clear, Monday’s de-escalation does not merit uncorking the champagne. The economy is not out of the woods — the average effective US tariff rate is still higher than it has been since the Smoot-Hawley era of the 1930s.Fewer container ships at American ports suggests that at least some shelves will be empty and that lay-offs for transport and warehouse workers are likely. Tariffs will raise consumer prices, reducing real incomes and leading consumers to cut back on spending. US manufacturers import parts and equipment, so tariffs will reduce their competitiveness and reduce their demand for workers. The massive uncertainty from Trump’s volatile trade policy will be a drag on business investment and expansion. And my optimism might be misplaced. At the first sign of problems in the hard economic data, businesses might start laying off workers and freezing their spending. Small businesses may not be able to weather even a few months of large increases in the cost of imports. Given the worrying rise in medium-term inflation expectations, the Fed may not be able to cut rates to soften the blow from lower incomes and weaker demand. Still, Trump’s eagerness to de-escalate, willingness to pivot and the resilience of the economy suggest the US can avoid the worst. This does not mean it will achieve the best. Trump’s trade war remains an astonishing act of self-sabotage that will slow growth and increase unemployment. Avoiding a recession is a perverse and tragic metric of success. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldAlmost 600 years ago, when the Ottomans conquered Constantinople, they learnt the danger of imperial over-reach. In a bid to punish the European merchants they disliked, the Ottomans imposed fees and sanctions on traders using the famed Silk Road. The Portuguese duly responded by developing sea routes to Asia. The resulting struggle led to the long-term decline of the Silk Road; the power-grab backfired. Is this now happening again? It is worth pondering. US President Donald Trump is not only unleashing wildly capricious tariffs (a word, incidentally, drawn from Arabic), he is also implementing sanctions.This week alone, amid his whirlwind tour of the Middle East, Trump announced sanctions on Asian companies that move Iranian oil to China. He is also mulling fresh sanctions against Russia, following a move by Europe.Trump is certainly not the first US president to do this: his predecessors have increasingly embraced the idea since 2001. But the White House appears doubly eager to wield these weapons now, not just around oil, but also sensitive technology such as chips, and finance (by cutting countries out of the Swift payment system). Or as Edward Fishman writes in a powerful new book Chokepoints: “Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus. American power in the globalised economy relies on chokepoints of a different kind.” However, there is a certain irony here: just as the Portuguese responded to Ottoman controls by developing alternative trading routes that undercut their power, Trump’s targets are now threatening to do the same — faster. Consider oil. Back in 2022, after Moscow’s brutal invasion of Ukraine, America and Europe put sanctions on Russia’s oil exports, hoping to hit its economy, just as earlier sanctions did with Iran. But western allies also feared that an outright ban would cause oil prices to soar. So they tried half measures: Russia was permitted to sell to non-western countries, but at sub-market prices, below $60 per barrel, with sanctions imposed on recalcitrants. This inflicted some pain on Russia: fascinating economic research from the Dallas Federal Reserve suggests that when Russian exports were diverted to India, Russia had to “accept a $32 [per barrel] discount on its Urals crude in March 2023 relative to January 2022”, due to higher shipping costs, and India’s newfound bargaining power. But this pain was ameliorated because Russia also started using “shadow fleets” to transport oil — tankers that avoid detection by switching off transceivers. And while such shadow fleets used to be small, they have now exploded in size, creating “a permanent parallel oil trading system beyond internationally recognised policies and controls,” according to a report from the Royal United Services Institute. Indeed, one recent economic analysis that used machine learning models suggests that “between 2017 and 2023, dark ships transported an estimated 9.3mn metric tons of crude oil per month — nearly half of global seaborne crude exports.” China accounts for 15 per cent of the trade.American officials are trying to fight back. Hence this week’s sanctions move against Hong Kong-based companies. But, as Agathe Demarais, of the European Council on Foreign Relations, notes in her book Backfire, past experience suggests that sanctions only truly work well when they are implemented swiftly, clearly targeted and — crucially — backed by allies. It is not clear if Trump can deliver this. After all, his tariff policy has shattered the trust of allies. And efforts by the previous administration to curb tech exports to China partly backfired, since Beijing is developing its own tech and using third parties to smuggle in chips. So too with finance: when America pushed Russia out of the Swift payment system, it “significantly reduced Russian trade with the firms in the west” but was “ineffective in reducing Russian trade with non-western countries,” according to an unpublished paper from economists at the Bank for International Settlements. That was because “the increasing use of partner currencies in Russia’s trade with developing countries has helped mitigate the effects of Swift sanctions”. True to form, Trump has doubled down: he is threatening to impose 100 per cent tariffs against countries that develop non-dollar payment systems. Maybe that will work, given the dollar’s current dominance. But, to echo Demarais’ point, history shows that while sanctions can sometimes be effective, they must be used very decisively, with allies. Even then, they can produce unintended consequences. So all eyes on Iranian oil. Trump may yet roll back his threats: oil prices fell on Wednesday when he said he was making progress in talks with Tehran. But if not, those shadow ships will be a good litmus test of whether Trump’s team really has as much power as it thinks. Time to (re)visit the Silk Road. [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Federal Reserve policymakers’ aims to curb inflation while maximising employment are “pulling them in diametrically different directions” as Donald Trump’s trade war upends the economic outlook, the head of Fidelity’s $2.3tn fixed-income business has said. Robin Foley told the Financial Times that the US central bank’s “inflation fighting is all well and good, but employment still remains to be seen”. She added that the central bank was in a “tough spot”.Foley’s comments come as the Fed has this year paused a rate-cutting cycle that began in 2024 as the US president’s levies on big trading partners threaten to increase inflation and hit the jobs market. Recent economic reports have suggested the Fed has made progress in pushing inflation towards its 2 per cent target while unemployment has remained subdued. But surveys have shown Americans are growing increasingly worried about their employment prospects, while many companies have warned tariffs could lead to price increases. Fed chief Jay Powell said last month that “we may find ourselves in the challenging scenario in which our dual-mandate goals are in tension”. Foley, who has worked at Boston-based Fidelity for 39 years and keeps a lower profile than many industry peers, noted that over the past year there had been “wildly volatile” shifts in expectations for interest rates among market participants. Trading in futures markets suggests investors expect the Fed to resume cutting borrowing costs in September, significantly later than forecasts at the start of the year.Foley added that it appeared that the intense volatility in the US government bond market following Trump’s “liberation day” announcement of sweeping tariffs on April 2 had been one reason why the president ultimately eased his stance on levies. Despite the market tumult, Foley said Fidelity had been “overweight risk” against the main benchmarks in some of its fixed-income strategies, “but not excessively so”.Almost a third of the asset manager’s flagship Total Bond Fund sat in corporate bonds as of March 31, relative to just a 25 per cent allocation within a fixed-income index tracked by Bloomberg. The same flagship fund had less than a third of its holdings in US government debt, below the benchmark’s 46 per cent position.With interest rates remaining elevated, “there’s very attractive yield in the market now”, said Foley, “even in the form of US Treasuries; that was not true for a very long time.“With that as a backdrop, you really need to be compensated to take on incremental credit risk.” More

Reading headlines about business in China in the past five years, foreign observers might be forgiven for thinking the country of 1.4bn people is no longer worth considering as an investment destination.From the crushing Covid lockdowns and property sector meltdown to US-led sanctions on Chinese tech companies and now President Donald Trump’s trade war, negative sentiment has abounded.And yet, on the ground in the world’s second-biggest economy that is also a high-tech manufacturing powerhouse, some lawyers and other advisers still consider China to be a land of opportunity that continues to be misunderstood.“There are still a lot of opportunities here,” says Joe Chen, a Shanghai-based partner with JunHe, one of China’s top law firms, who has been involved with some of the biggest private equity deals recorded in China.Some of the merger and acquisition activity is the result of rising geopolitical tensions, as multinational companies act to shift their business out of China. But transactions have also continued for more sanguine reasons, and groups of Chinese investors — such as insurers, some of the most active — remain hungry for deals.These deals included alternative investment manager PAG’s sale last year of a majority stake in AirPower’s industrial gas unit, Yingde, to a Chinese consortium. According to reports, the deal was valued at about $6.8bn, compared with PAG’s equity investment of $1.5bn in 2017, marking a conventional exit for the group, which is led by Weijian Shan, a veteran Hong Kong-based private equity investor. “For them it was a very normal exit,” says a person familiar with the deal.Separately, Spain-based healthcare giant Grifols sold a 20 per cent stake in blood products manufacturer Shanghai RAAS to Chinese consumer electronics group Haier for €1.6bn last June. This, JunHe’s Chen says, was a “good asset” that attracted interest from a handful of potential buyers before Haier secured the deal.Statistics on China’s M&A trends, released this year by PwC’s China team, paint a mixed picture. On the one hand, the value of China’s M&A transactions fell 16 per cent to $277bn last year as the number of so-called megadeals above $1bn fell to the lowest level in nearly 10 years at just 39.However, PwC also spotted a rebound in venture capital activity, with more than 6,000 deals valued at less than $10mn, up nearly two-thirds in 2024. In terms of the outlook, the firm also saw some “positive” signs, including: pent-up demand for investments; a large number of private equity projects seeking exits; growing demand for overseas investments by Chinese capital; and some big transactions stemming from the reform of China’s state-owned enterprises.From the perspective of domestic investors, some green shoots can also be detected via the rise of a group of companies that include artificial intelligence start-up DeepSeek, electric-car maker BYD, battery company CATL and pioneering robot maker Unitree. These businesses have been held up by investors, and government officials, as indisputable examples of the country’s high-tech prowess. And since September 2024, President Xi Jinping’s administration has also touted a series of measures aimed at stimulating growth, helping to further improve local sentiment after several years of malaise.Unitree is hailed as an example of China’s technological prowess  More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe Trump administration plans to put a number of Chinese chipmaking companies on an export blacklist, but some officials want to delay the move to avoid hurting efforts to strike a long-term trade agreement with China.The commerce department has compiled a list of Chinese companies — including China’s memory chipmaker ChangXin Memory [CXMT] — to add to the “entity list,” according to five people familiar with the matter.Several of the people said the Bureau of Industry and Security, the commerce department arm that oversees export controls, had drafted a list that also includes the subsidiaries of Semiconductor Manufacturing International Corporation, China’s biggest chipmaker, and Yangtze Memory Technologies Co, its largest memory chipmaker. SMIC and YMTC are already on the list. But the timing of the move has been complicated by the trade deal agreed by China and the US in Geneva at the weekend. The two sides agreed to ratchet down their reciprocal tariffs for 90 days to help reach a broader trade deal. Some Trump administration officials have argued that putting export controls on critical Chinese groups now could jeopardise the negotiations. But others point out that Republicans criticised the Biden administration for delaying competitive actions against China to facilitate what they called “zombie diplomacy”.China hawks have long pushed to target CXMT, which is rapidly expanding its share of the global Dram memory chip market. The chipmaker is also leading efforts to become a player in developing high-bandwidth memory (HBM), which is critical for operating artificial intelligence models. Adding the chipmakers to the export blacklist is the latest effort by the US to make it much harder for China to obtain advanced American chips and chipmaking technology that could be used to help modernise its military. American companies cannot sell to Chinese groups on the entity list without government licences, which have become increasingly hard to obtain.US security officials are concerned that it has been too easy for China to obtain American technology, which has enabled its military to do everything from developing hypersonic weapons to modelling nuclear weapons.The Chinese companies could not be reached for comment. The Chinese embassy in the US declined to comment on the case, but said: “China firmly opposes the US’s overstretching the concept of national security, abusing export controls, and maliciously blocking and suppressing China.”The commerce department and White House both declined to comment.   More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldIf there was any doubt that geopolitics has come to play an outsized role in the fortunes of the US artificial intelligence industry, look no further than the recent upturn in the fortunes of leading AI chipmaker Nvidia.The company’s stock market value has just surged by more than half a trillion dollars in the space of a week on the back of US policy that seemed geared to the needs of the country’s AI companies. At first glance, that might look like a strong “buy” signal for US AI, but the whiplash effect on tech stocks from the erratic opening months of the Trump White House makes such optimism premature.The chipmaker’s hot streak on Wall Street started with the news that the new administration was about to suspend measures designed to slow the spread of advanced AI around the world. The so-called AI diffusion rule, announced late in the Biden presidency and due to take effect this week, would have restricted the free sale of the most sensitive AI technologies to 18 close US allies.Most other countries, consigned to “tier two” status, would have had access to only a limited supply of AI chips. Importantly, the blueprints for leading-edge models would also have been barred from export to these countries, keeping the training and operation of the most advanced AI inside a narrow circle of countries. Lifting those restrictions doesn’t just point to potential new markets for US tech, but could give US AI companies a freer hand in deciding the optimal location for their operations, perhaps even leading to an offshoring of advanced AI.That news was followed at the start of this week with a significant reduction in the severe import tariffs imposed last month on China. A day later, and timed to coincide with a Middle East visit by Trump, Nvidia’s stock got another big lift as the company announced a large deal to sell its most advanced data centre chips to Saudi Arabia.The lurch of US policy in directions that seem to favour its leading AI companies looks like welcome relief for Silicon Valley. However, far from being settled, major parts of the new administration’s tech policy are now officially up in the air. That leaves them vulnerable to horse-trading among different interest groups in the White House, as well as the president’s own whim.Areas of uncertainty include what a replacement AI diffusion rule will look like. The new administration may have shown an openness to countries like Saudi Arabia and the UAE, which is also now in line for a large batch of Nvidia chips — but it is still considering what extra restrictions are needed to prevent the re-exporting of sensitive US technology to China.At the same time, it appears to be working on a comprehensive new tariff regime for semiconductors. And export restrictions on direct sales of AI chips to China continue to be a moving target. A month ago, Nvidia’s market cap slumped by $370bn in just three trading sessions after it disclosed the latest controls on its China sales. That brought a nadir for its stock — before, that is, the more favourable moves in Washington that have since helped to send the price back up nearly 40 per cent.At least the signal from the Middle East this week has been that the US is very much open to unrestricted AI business with its favoured allies, and its tech companies have shown they are more than ready to surge through any open door presented to them. Countries such as Saudi Arabia may have a long way to go to develop the wider tech skills and capabilities they aspire to, but at least they have plentiful supplies of energy and cash.The outlook for opening other markets is harder to predict. As the US tries to reach a host of new trade deals, there is a risk that access to its advanced tech will become just one more pawn haggled over in negotiations.US tech investors, meanwhile, may take extra heart from Washington’s warning to international customers not to buy the latest Ascend data centre chips from Huawei. In practice, there is not much of a sign that is a market yet for these chips outside China. To judge by the pace of recent advances, this probably won’t always be the case. At some point, open Chinese AI models tuned to run on a more advanced generation of Chinese AI chips could come to represent a viable alternative on global markets. The question, at that point, will be whether Washington has already done enough to embed its homegrown AI in all the markets that [email protected] More

Sir Keir Starmer will on Friday be urged by European leaders to raise Britain’s offer on youth mobility and fisheries to unlock a deal with the EU at a historic summit between the two sides on Monday.The prime minister is expected to hold talks with leaders including French President Emmanuel Macron and European Commission president Ursula von der Leyen, in a last-ditch effort to end an impasse ahead of the UK-EU summit in London.EU negotiators are dangling in front of Starmer a better deal for UK touring artists — a cause championed by Sir Elton John — and a long-term deal to remove barriers to agrifood trade, according to Brussels officials.In exchange Starmer is being pressed to concede better terms for EU students and other young people wanting to travel to Britain, along with a long-term extension of current fishing rights in UK waters for France and other coastal states.British officials say they expect Starmer to meet EU leaders on the margins of a summit of the European Political Community — a pan-European grouping focused on security issues — in the Albanian capital of Tirana.One EU diplomat said: “There’s a view that, after Brexit, most of the ‘asks’ in this negotiation are British asks.” The Financial Times reported on Thursday that the 27-member bloc wants Starmer to make last minute concessions.Other EU diplomats warned that the EU-UK reset — set to be signed at the first summit between the two sides since Brexit took effect in 2020 — must include a “fish for food” swap with Brussels.“They have to accept a link between fish and [a food products shipping deal] and they are refusing,” said one EU diplomat, referring to a sanitary and phytosanitary agreement that would reduce barriers to trade in food, fish products and animals.The UK has offered to continue current access to its fishing grounds for four years after 2026, but the EU wants at least seven, officials said. Brussels wants to tie the duration of the veterinary deal to the fishing agreement.A vet deal and one to allow British musicians and artists to tour the EU were in the Labour manifesto, and Brussels is offering to compromise on the latter. A senior official told the FT that it would be willing to amend the post-Brexit treaty between the two to allow British truckers and roadies to move freely between EU countries in return for a scheme to permit 18 to 30-year-olds to work and study in the UK more easily. Starmer, speaking in Tirana on Thursday, said he would not negotiate with Brussels via “megaphone diplomacy” but insisted: “We’ve made good progress and I’m confident we will make really good progress into Monday.”The prime minister said that a deal with the EU — including a security and defence pact — would mean that he had concluded agreements with India, the US and the EU within the space of three weeks. “That is incredibly beneficial for our country,” he said.Starmer again declined to rule out what is expected to be a central part of Monday’s deal: that Britain would accept shifting Brussels rules — and “dynamically align” with new EU regulations — as part of an agreement to break down borders in food trade and electricity markets.Conservative leader Kemi Badenoch has criticised Starmer for being willing to compromise British “sovereignty”. She told a conference in Brussels that “we can improve our relationship with European countries, but not by being a supplicant”.Starmer hit back at the Tory leader, saying: “Without knowing what’s in the deal with the EU, she says she’s against it. The only saving grace is that nobody in Europe takes her seriously.” More