Finance

Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the Fed funds rate from a target range of 0.25-0.5% to 5.25-5.5%, and inflation has since fallen substantially.
October’s consumer price index slated for release Tuesday is expected to show an increase of 0.1% month-on-month and 3.3% annually, according to a Dow Jones poll of economists.

James Bullard at Jackson Hole, Wyoming.
David A. Grogan | CNBC

Former St. Louis Fed President Jim Bullard says the Federal Reserve still has “a ways to go” in fighting inflation and that there is still a risk that prices pick up once again.
Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the Fed funds rate from a target range of 0.25-0.5% to 5.25-5.5%, and inflation has since fallen substantially.

Although markets now believe interest rates have peaked and have begun looking forward to cuts next year, Bullard — who stepped down as head of the St. Louis Fed in August — suggested the central bank’s work is far from over.
“It’s been so far so good for the FOMC. Inflation has come down, core PCE inflation on a 12-month basis down from 5.5% to 3.7% — pretty good but that’s still only halfway back to the 2% target so you’ve still got a ways to go,” he told CNBC’s Joumanna Bercetche on the sidelines of the UBS European Conference in London.
“I think you have to watch the data carefully and it’s very possible that inflation will turn around and go the wrong way.”
October’s consumer price index slated for release Tuesday is expected to show an increase of 0.1% month-on-month and 3.3% annually, according to a Dow Jones poll of economists.
“That’s just one month’s number, but still I think the risk for the FOMC is that the nice disinflation that we’ve seen over the last 12 months won’t persist going forward and then they’ll have to do more,” Bullard said. More

UBS sees slower growth, rising unemployment and disinflation to lead the Fed to cut its benchmark rate to a target range ending the year between 2.50% and 2.75%.
Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are “much worse now than 12 months ago,” particularly in the form of the “historically large” amount of credit that is being withdrawn from the U.S. economy.

U.S. Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023.
Evelyn Hockstein | Reuters

UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world’s largest economy tips into recession.
In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank’s economists suggested that “fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024.”

UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates “first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening.”
Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the Fed funds rate from a target range of 0.25-0.5% to 5.25-5.5%.
The central bank has since paused at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.
However, Fed Chairman Jerome Powell said last week that he was “not confident” the FOMC had yet done enough to return inflation sustainably to its 2% target.

UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is “not out of the woods yet.”

“The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time,” UBS highlighted.
“According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings.”
The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are “thinning out” and balance sheets look less robust.
“Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated,” UBS said.

“In our view, the private sector looks less insulated from the FOMC’s rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%.”
UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.
“With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation,” the bank’s economists said.
Worst credit impulse since the financial crisis
Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are “much worse now than 12 months ago,” particularly in the form of the “historically large” amount of credit that is being withdrawn from the U.S. economy.
“The credit impulse is now at its worst level since the global financial crisis — we think we’re seeing that in the data. You’ve got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising,” he told CNBC’s Joumanna Bercetche on the sidelines of the UBS European Conference.

Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the “massive gap” between real incomes and spending that means there is “much more scope for that spending to fall down towards those income levels.”
“The counter that people then have is they say ‘well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?’ But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year,” Kapteyn argued.
A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research (NBER) Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production and incomes.
Goldman ‘pretty confident’ in the U.S. growth outlook
The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.
Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was “pretty confident” in the U.S. growth outlook.
“Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that,” he told CNBC’s “Squawk Box Europe.”
Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.
“I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau,” he concluded. More

Could the inflation nightmare soon be over? Across the oecd club of mostly rich countries, consumer-price inflation has fallen from a peak of 10.7% in October 2022 to 6.2%. Wage growth is slowing, too. Investors are hopeful that, before long, more progress will be made, allowing central bankers to cut interest rates. They may be getting ahead of themselves. Last year The Economist calculated a measure of “inflation entrenchment”. It showed that the disease, symptoms of which first appeared in America, was starting to infect the entire rich world. We have repeated the analysis, focusing on five measures: core inflation, unit labour costs, “inflation dispersion”, inflation expectations and Google-search behaviour. We rank ten countries on each indicator, then combine the rankings to form an “inflation-entrenchment” score. Overall, the data show that inflation remains entrenched, perhaps more so than in 2022. The country with the worst score last May, Canada, would have only been third-worst this time around. Things are dire in Anglophone countries, including Australia and Britain. Yet there are bright spots. Italy and Spain are doing well. In Japan and South Korea the battle could be nearly over. What can the strugglers learn from the inflation-killers?Start with the problem countries. In Australia, our worst performer, the labour market is on fire. Over the past year labour costs, measured by how much employers pay workers to produce a unit of output, have risen by a chunky 7.1%—faster than in any other country sampled. Nor does anywhere else have more “inflation dispersion”, which we define as the share of consumer prices across the economy that are rising by more than 2% year on year. Other Anglophone countries have different problems. A data set from researchers at the Federal Reserve Bank of Cleveland; Morning Consult, a data firm; and Raphael Schoenle of Brandeis University provides a cross-country gauge of what the public expects to happen to prices. Canadians think that consumer prices will rise by 5.7% over the next year, the highest of any country in our sample. Canadians are also googling terms related to inflation most often. Britons, for their part, are suffering from core inflation (ie, excluding food and energy prices) of 6.1%, year on year, the highest of any country. America does not do very badly on any measure. Equally, however, it does not do very well on any. This stickiness of inflation may reflect the fact that fiscal stimulus across Anglophone countries in 2020-21 was about 40% more generous than in other rich places. It was also more focused on handouts to households, such as stimulus cheques, than on measures to keep businesses alive, which may have further stoked demand. Indeed, a new paper by Robert Barro of Harvard University and Francesco Bianchi of Johns Hopkins University finds evidence for a link between fiscal expansion during the covid-19 pandemic and subsequent inflation. Monetary policy is another factor at work. When covid struck, central banks in America, Australia, Britain and Canada reduced interest rates by one percentage point on average, twice as big a cut as in other countries in the rich world. This extra stimulus may have pushed up inflation. In the past year or so English-speaking countries have also received lots of migrants, which in the short term can be inflationary, because new arrivals compete for housing and drive up rents. Estimates by Goldman Sachs, a bank, imply that Australia’s current annualised net-migration rate of 500,000 people is raising inflation by around half a percentage point. So why are countries elsewhere doing better? Asia’s brief experience with high inflation could soon be over. Japanese people expect prices to rise by just 1.5% over the next year; South Koreans have better things to do online than to search for information about inflation. Recent history could play a role in explaining this performance. Before covid, rich Asian countries had lived with low inflation for so long that it may have seemed like the natural state of affairs. Following the jump in inflation in 2021-22, the behaviour of firms and households may have shifted in a disinflationary direction more quickly. By contrast, in places like Britain, which had experienced inflation surges in 2008, 2011 and 2017, people may have developed a more inflationary mindset.In Europe inflation expectations have fallen a long way from their peak. The picture is particularly rosy in parts of the continent. Owing to a combination of policy and luck, energy-price rises were not as sharp last year in Italy and Spain as in other countries, which may have prevented people from anticipating further inflation. France, with a perkier economy, is somewhere between the Anglosphere and Asia. Germany is a different story. Once upon a time, its workers were known for their pay restraint. Now, with an uber-tight jobs market, unit labour costs are rising by more than 7% a year. Price dispersion is also unusually high. In what will be a source of satisfaction in many European capitals, German economists are increasingly looking at southern European countries with envy. ■ More

Investors concerned about the market may want to consider stocks that have stood the test of time — otherwise known as dividend monarchs.
That’s a top strategy for Roundhill Investments, which launched its S&P Dividend Monarchs ETF this month.

“It’s named that for a reason. It focuses on the dividend monarchs. These are companies that have increased their dividends each and every year for a minimum of 50 years,” Roundhill’s chief strategy officer David Mazza told CNBC’s “ETF Edge” this week.
According to the firm’s website, it’s the first U.S.-listed ETF designed to track the performance of these kinds of stocks.
“These companies have been through it all. They’ve been through wars, recessions, most recently a global pandemic and they’ve been able to reward shareholders with an increase in their dividends each and every year,” said Mazza, who refers to many of them as President “Dwight Eisenhower”-era stocks.
As of Nov. 9, FactSet reports the S&P Dividend Monarchs ETF’s top holdings are 3M, Federal Realty Investment Trust, Leggett & Platt, Black Hills Corporation and Stanley Black & Decker.

‘No exposure to IT and no exposure to communication services’

“It’s a healthy overweight to consumer staples, industrials, and then utilities. So, it is a mix of your traditionally defensive sectors,” he noted. “In this ETF, [there’s] no exposure to IT and no exposure to communication services. So, for investors who are looking to reallocate away from those names that have led the market higher this year… something like the dividend monarchs ETF can be an opportunity for them.”

VettaFi’s Todd Rosenbluth also sees dividend monarchs as a safer play for investors right now.
“I think we’re seeing as bond yields have come down, dividends are going to be more appealing. Investors, through dividend strategies… can benefit from upside in the stock market but also get some of that downside protection and stability with dividends,” the firm’s head of research said.

Disclaimer More

“I think the SEC, in my opinion, has lost sight of their mission to protect investors,” Ripple CEO Brad Garlinghouse told CNBC’s Dan Murphy at the Ripple Swell event in Dubai.
Ripple was handed a pivotal victory in July as a judge ruled that XRP was not in and of itself a security; the next key step in the case is a remedies discovery process.
Garlinghouse hopes that the U.S. will move beyond a situation where crypto regulation is dictated by litigation to a point where federal laws governing digital currencies are introduced by Congress.

Brad Garlinghouse, chief executive officer of Ripple Labs Inc., speaks during the Token2049 conference in Singapore, on Wednesday, Sept. 13, 2023.
Joseph Nair | Bloomberg | Getty Images

The CEO of blockchain company Ripple has some strong words for the U.S. Securities and Exchange Commission.
Brad Garlinghouse told CNBC’s Dan Murphy at the company’s Ripple Swell conference in Dubai that he thinks the agency has lost sight of one of its key tasks as a regulator.

“I think the SEC, in my opinion, has lost sight of their mission to protect investors. And the question is, who are they protecting in this journey?” Garlinghouse said Thursday. The SEC was not immediately available for comment when contacted by CNBC.
The SEC in 2020 accused Ripple and its executives of conducting a $1.3 billion securities fraud via sales of XRP to retail investors. Ripple, the regulator alleged, failed to register an ongoing offer and sale of billions of XRP tokens to investors, depriving them of adequate disclosures about XRP and Ripple’s business.
In July, Ripple was handed a pivotal victory as a judge ruled that XRP is not in and of itself a security. Following this, the SEC was denied a request for an interlocutory appeal. Then, in October, the SEC dropped its securities law violation charges against Garlinghouse and Ripple executive Chris Larsen.
The next key step in the case is the remedies discovery process. The SEC has 90 days from Nov. 9 to conduct remedies-related discovery, according to a proposed schedule submitted by the SEC.
“I think it is a positive step for the industry, not just for Ripple, not just for Chris and Brad, but for the whole industry, that the SEC has been put in check in the United States. And I’m hopeful this will be a thawing of the permafrost in the United States for really seeing an amazing industry that has immense potential thrive in the largest economy in the world,” Garlinghouse told CNBC.

Garlinghouse hopes that the U.S. will move beyond a situation where crypto regulation is dictated by a constant stream of litigation to a point where federal laws governing digital currencies are introduced by Congress.
“One of the things that people talk about is, one of the definitions of insanity is doing the same thing over and over again, and thinking you’ll get a different outcome, the SEC is doing the same thing over and over again. And they think, I guess, they’re gonna get a different outcome at some point,” Garlinghouse continued.
“[Digital asset manager] Grayscale also had, I think, an important victory in the United States about the bitcoin ETF, where the judge had to get, a federal judge talking about a federal agency, the SEC, saying the SEC is being arbitrary and capricious,” he added, referencing an appeals court ruling that said the SEC was wrong to reject an application from Grayscale to create a bitcoin ETF.
“Generally, judges tend to be pretty down the middle and try to not be dramatic — those are damning words. So I think at some point, the SEC has to step back and realize that their approach of regulation through enforcement, let’s just bring lawsuits, that has to break.”

What is Ripple?

Ripple is a payments company that specializes in cross-border money transfers through the blockchain, a distributed database that records transactions across multiple computers. The company’s RippleNet network is used by financial institutions to send funds from one country to another.
Ripple also leverages XRP, a cryptocurrency, to make cross-border payments. The XRP token, which has become commonly associated with Ripple the company, is meant to act as a kind of “bridge” currency between one fiat currency and another as those transactions flow across countries.
So, say you want to send some money from the U.S. to Mexico. Ripple’s technology lets you do that by converting the U.S. dollars into XRP, transferring the XRP over to Mexico, and then converting it into Mexican pesos on the other side.
By doing so, Ripple says, you don’t need to have pre-funded accounts on the other side of a cross-border transaction in order to get that money.
That’s the business case for XRP from Ripple’s point of view. But XRP in its most common usage is ultimately a token that investors speculate on. And when its price dropped like a stone — like other cryptocurrencies — in the 2018 crypto bear market, regulators got concerned about the impact of these digital currencies on retail investors.
In Ripple’s case, unlike bitcoin, the cryptocurrency is predominantly owned by Ripple, which holds a huge amount of XRP in an escrow account and releases tokens on a quarterly basis to a mix of institutional investors and retail investors via sales on cryptocurrency exchanges. This is a big part of how Ripple makes money.
That has been a big point of contention for the SEC as it pursues its case against Ripple. Ripple, for its part, maintains that XRP shouldn’t be considered a security and is more akin to a currency or commodity. Being designated a security would mean Ripple having to file lots of paperwork and disclosures with regulators, a process that could prove costly. More

With the meme-stock rally in the review mirror, individual investors are rediscovering a philosophy made famous by Vanguard’s founder, Jack Bogle.
Fans call themselves “Bogleheads,” and espouse the virtues of “lazy” investing — a strategy that’s working well amid higher interest rates.
“Income-seeking retail investors are taking advantage of the new high-rate regime — some are calling it ‘T-Bill and chill,”‘ said Marco Iachini, senior vice president of Vanda Research.

Jack Bogle
Mark Lennihan | AP

Boring investing is making a comeback.
With the meme-stock rally in the rearview mirror and interest rates surging, individual investors are rediscovering the philosophy made famous by Vanguard’s founder, Jack Bogle. The father of market indexes preached low-cost, passive investments that compound over years. Fans call themselves “Bogleheads,” and the strategy “lazy” investing.

They’re well positioned for the current market. Timing has proved difficult this year, with eight days accounting for all of the S&P 500’s gains, according to DataTrek. Higher rates have slammed tech and growth stocks, which dominated retail traders’ portfolios during the pandemic. GameStop, the original meme trade, is down roughly 85% from its all-time high.
Dan Griffin, a self-proclaimed Boglehead based in Florida, said he watched the meme stock rally in amusement. The current market condition is proof that his “tortoise” investing approach is the right one to building long-term wealth, he said.
“It’s a little bit of vindication,” Griffin told CNBC. “I’m happy to be the boring investor, I’m happy to be the tortoise. While the hare does win sometimes, the tortoise more often than not, is going come out ahead.”
Christine Benz, a director of personal finance and retirement planning for Morningstar, said investors are gravitating towards higher yields right now to capture value — another core principle of the Bogleheads.
“Bogleheads are investing for the very long haul — the idea is that you’re putting money into your account and just adding to it, maybe not touching it or looking at it for another 30 years,” she said. “The meme stock phenomenon seemed so focused on being incredibly plugged into your portfolio and monitoring your investments — I see the Bogleheads’ philosophy as being antithetical to all of that.”

Wall Street Bets to Bogleheads

Brokerage firm Robinhood, once synonymous with day trading, is seeing a similar pivot to higher yields and longer-term thinking.
The company launched retirement accounts this year, and offers 3% back on cash as it tries to diversify away from slumping trading fees. Robinhood’s co-founder and CEO Vlad Tenev told CNBC that investors have been moving into cash, money market funds and bond ETFs. He noted more chatter in Bogleheads’ Reddit group, versus the infamous Wall Street Bets.
“One of the really interesting things that we’ve seen over the past couple of months is Robinhood being mentioned, and discussed in these traditional passive investing forums, like Bogleheads on Reddit,” Tenev said. “People are building long-term portfolios on Robinhood, taking advantage of the better economics and the tools to do that.”
Bond ETFs are one way retail investors have tried to capture rising interest rates. The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) was the third most-bought name last week after the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF (SPY), according to Vanda Research. It saw the largest single-day of net inflows to the ETF since the firm began measuring it almost a decade ago.
“Clearly, income-seeking retail investors are taking advantage of the new high-rate regime, which had been missing from the investment landscape since the pre-GFC [Great Financial Crisis] years,” Marco Iachini, senior vice president of Vanda Research, said in a note to clients. “Some are calling it ‘T-Bill and chill.'”
Younger investors are even more exposed to fixed income compared to their older counterparts. In its annual study, Schwab Asset Management shows millennial ETF investors have 45% of their portfolios in fixed income — compared to 37% for Generation X. The survey showed 51% of millennials plan to invest in bond ETFs next year, compared to 40% of baby boomers.
While far from a meme stock, the move to fixed income could still be risky.
The iShares 20+ Year Treasury Bond ETF (TLT), has seen $19.8 billion in assets flood in this year, according to BlackRock. If yields go up, funds like TLT will suffer — since bond yields move inversely to prices. That’s been the case this year, with TLT down about 50% from its record high. On the other hand, if yields fall, bond funds should outperform.

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San Francisco Federal Reserve President Mary Daly said tighter monetary policy is helping to bring down the pace of inflation.
Daly did not commit to a position on the future of rates, instead saying the Fed is in a place where it can evaluate the incoming data and move accordingly.

Mary Daly, president of the Federal Reserve Bank of San Francisco, poses after giving a speech on the U.S. economic outlook, in Idaho Falls, Idaho, on Nov. 12, 2018.
Ann Saphir | Reuters

Tighter monetary policy is helping bring down the pace of inflation but not to a level where policymakers should feel too comfortable, San Francisco Federal Reserve President Mary Daly said Friday.
“The news on inflation has been fairly good, and we shouldn’t dismiss that,” the central bank official said during an interview on CNBC’s “The Exchange.” “All of that said, it is far too early to declare victory.”

Those comments come a day after Fed Chair Jerome Powell helped spook financial markets when he said he and his fellow officials are “not confident” that policy has reached a point of being tight enough to get inflation down to their 2% target.
Daly compared the Fed’s job to get policy to the “sufficiently restrictive” benchmark to someone riding a horse and trying to know whether the bridle has been pulled back far enough to stop.
“You don’t know if the horse is feeling that bridle enough to be sufficiently restrictive to stop,” she said. “So much like the horse, we’re in a position now where we know we’re significantly restrictive. But to really be truly confident that we have a sufficient level of restriction in the economy to bring inflation down, we’re going to have to watch the data and see if the economy is slowing.”
For the second meeting in a row, the Federal Open Market Committee last week decided to hold rates in place, with the Fed’s benchmark borrowing level targeted in a range between 5.25% and 5.5%, its highest in 22 years.
Daly, who will be an FOMC voter in 2024, did not commit to a position on the future of rates, instead saying the Fed is in a place where it can evaluate the incoming data and move accordingly.

“We’re going to be very forward-looking here, and so that’s why it’s too early to declare victory. But I don’t want to discount the fact that we’re in a good place because we can be able to move easily and agilely, depending on what the data brings,” she said.Don’t miss these stories from CNBC PRO: More

U.S. chipmaking giant Nvidia has reportedly found a way to sell high-end chips to Chinese companies — while remaining compliant with U.S. restrictions.
Nvidia is set to deliver in coming days three new chips to domestic manufacturers, Chinese financial media Cailian Press said Thursday, citing sources.
Nvidia, the U.S. Department of Commerce and the Bureau of Industry and Security did not immediately respond to a CNBC request for comment.

The logo of Nvidia Corporation is seen during the annual Computex computer exhibition in Taipei, Taiwan, May 30, 2017.
Tyrone Siu | Reuters

BEIJING — U.S. chipmaking giant Nvidia has reportedly found a way to sell high-end chips to Chinese companies — while remaining compliant with U.S. rules aimed at curbing China’s access to the tech.
China accounts for 20% to 25% of Nvidia’s revenue in its data center business, its biggest unit.

Nvidia is set to deliver three new chips to domestic manufacturers in the coming days, Chinese financial media Cailian Press said Thursday, citing sources.
The chips — called HGX H20, L20 PCle and L2 PCle — are based on Nvidia’s H100 chip, the report said.
The H100 and A100 artificial intelligence chips were the first to be hit by new U.S. restrictions last year that aimed to curb sales to China. Nvidia said in a September 2022 filing the U.S. government would still allow it to develop the H100 in China.

In the near term, Chinese manufacturers have no better option and they will continue to buy Nvidia’s chips, while searching for replacements.

managing director, WestSummit Capital Management

Companies in China had then switched to Nvidia’s H800 and A800 chips, but the U.S. subsequently clamped down on those sales last month with new restrictions.
The H20’s computing power is only about 50% of that of the A100, said Bo Du, managing director at WestSummit Capital Management and a former engineer in the chip industry.

That’s “basically saying goodbye to physical simulation,” he said in Mandarin, translated by CNBC. While it’s possible to use clusters of lower-power chips to support large model calculations, he said there’s no ideal solution given the costs.

“In the near term, Chinese manufacturers have no better option and they will continue to buy Nvidia’s chips, while searching for replacements,” Du said, noting that some large internet companies have started to buy domestically-made AI chips at scale.
Demand for artificial intelligence computing power has only gone up as companies in China rush to develop local versions of OpenAI’s ChatGPT.

Navigating a fine line

The Financial Times also reported the news of Nvidia’s new chips for the China market, citing a document the chipmaker distributed to potential customers.
Nvidia declined to comment. The U.S. Department of Commerce and the Bureau of Industry and Security did not immediately respond to a CNBC request for comment.
All three of Nvidia’s new chips have operating metrics outside the threshold of the U.S. restrictions, research firm SemiAnalysis said in an online post Thursday. The company operates a Substack tech newsletter that claims to have more than 64,000 subscribers.
“Nvidia is perfectly straddling the line on peak performance and performance density with these new chips to get them through the new US regulations,” SemiAnalysis said.
Nomura analysts previously found Nvidia’s Drive AGX Orin chip also did not meet all the criteria warranting a U.S. restriction on sales to China, allowing electric car companies in the country to still use the chip.

The U.S. has said its focus is on limiting China’s development of advanced tech for military use. President Joe Biden’s administration has also emphasized the country is in competition with China.
Domestic players are trying to develop workarounds to the U.S. restrictions.
In late August, Huawei released a smartphone that reviews indicated offers download speeds associated with 5G, thanks to an advanced semiconductor chip.
It’s not clear whether older equipment or alternative procurement processes were involved with the latest chip production.
— CNBC’s Arjun Kharpal contributed to this report. More