Trump and Xi Ease Trade Tensions; Big Tech Earnings in Focus

0:00Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio.

0:41That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Every week I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen.

1:20Bloomberg Audio Studios. Podcasts, radio, news. Good morning, I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Karen, we begin with the latest on U.S.-China relations after President Trump's long-awaited meeting with Chinese leader Xi Jinping. The two came face-to-face on the sidelines of the APEC summit in Busan, South Korea, and walked away with an agreement to cut fentanyl-related tariffs in half to 10 percent. President Trump says China has also agreed to buy U.S. soybeans again. On a scale of 1 to 10, he says he'd rate the meeting a 12. I thought it was an amazing meeting.

2:00he's a great leader, a leader of a very powerful, very strong country, China. President Trump spoke aboard Air Force One following the meeting. China's response was a bit more muted, as we hear from Bloomberg's Stephen Engel in Busan. He did say that China will cooperate with the United States on trade again after that hour and 40-minute meeting with Donald Trump. But he also went on to say, with a little bit of a cautionary tone, he said the U.S. that China should not fall into a vicious cycle of retaliation and says the U.S. should continuously reduce the list of problems. China and the U.S.

2:37should continuously reduce the list of problems and that the two nations should eye long-term benefit from cooperation. Bloomberg's Stephen Engel reports China has agreed to suspend rare earth export restrictions for one year and it says the U.S. will also pause some of its so-called reciprocal tariffs for a year. China also says it will resolve issues related to TikTok with the U.S. side, but it did not give specifics. Well, one issue that apparently did not come up, Nathan, in President Trump's meeting with Xi Jinping was NVIDIA's Blackwell chip. The president had indicated he might discuss it, giving China access to the AI chip giant's most advanced semiconductor.

3:16Trump says he and Xi talked about NVIDIA's access to China in general, and those conversations would continue. Speculation that the U.S. might greenlight sales of more advanced chips drove NVIDIA to become the first ever$5 trillion company. Well, let's turn now, Karen, to the latest market reaction to earnings from three high-tech heavyweights. Shares of Microsoft, they are down nearly 3 % in early trading. The world's largest software maker reported a steeper climb in spending than Wall Street expected. The profit and revenue did top analyst estimates, and the Azure Cloud Computing Unit posted a 39 % revenue gain in the quarter.

3:51that was also a beat. Anurag Rana is a senior tech analyst at Bloomberg Intelligence. You look at Azure growth of 39 percent. I mean, given that size, that's pretty good. The margins actually stood out way, you know, way higher than what we were anticipating. We thought there was going to be pressure on margins because of all the spending. And then the lastly, you know, when you look at the CapEx number, substantially higher than the 30 billion that they talked about. Now, in, you know, to some people, maybe that's a disappointment. But for us, That's a good thing because I think they have so much demand coming in.

4:23That's Ana Raghrana with Bloomberg Intelligence. And on the company conference call, Chief Financial Officer Amy Hood said Microsoft cannot meet current demand for AI and other services. Well, shares of Meta, Nathan, they're also pulling back this morning. They are down more than 7 percent. The Facebook owner is projecting increasing expenses and it's taking a one-time tax charge. Let me get more with Bloomberg's Charlie Pellett. Metta said the tax charge of$15.9 billion was due to the implementation of the tax bill signed into law in July. Ivan Feinseth is a senior partner at Tigris Financial Partners.

4:58So the big, beautiful bill caused the recognition of a deferred tax asset. It's actually a non-cash charge. While it caused a spike in their tax rate to 87 % for the quarter, it actually goes down significantly going forward. I think this is really a non-event. It's an accounting issue, and I think any weakness is a buying opportunity in the stock. Meta says it will continue to invest aggressively in artificial intelligence. In New York, Charlie Pellett, Bloomberg Radio. All right, Charlie, thank you. On the flip side, shares of Alphabet are surging pre-market. They're now up 8%. Sales topped quarterly Wall Street estimates fueled by a surge in demand for its cloud and artificial intelligence services.

5:35Brooke May is a managing partner at Evans May Wealth. Alphabet is the horse that I would put my money on right now. You know, they've blown their earnings out of the water. You know, not only did they have good earnings growth, but the cloud growth was very strong. You know, search is strong. That's Brooke May of Evans May Wealth. Alphabet says its capital expenditures for the year will be$91 to$93 billion. That's up from an earlier estimate of$85 billion. Well, Nathan, the high-tech earnings continue today with Apple and Amazon reporting after the close of trading. And we get a preview with Bloomberg's Tom Busby.

6:10Just days after Apple became the third stock in history to top$4 trillion in value, investors want to know about its investment in AI, how many new iPhone 17s it sold, and whether sales in China have started to rebound. It's projected to report record revenue topping$100 billion for the first time ever. At Amazon, investors will want to know about growth in its AWS cloud computing unit, the one that suffered a serious outage just last week. And they also want to know whether all the money it's investing in AI is bringing in revenue. Tom Busby, Bloomberg Radio. All right, Tom, thanks. Artificial intelligence startup OpenAI is reportedly preparing to file for an initial public offering as soon as next year.

6:49Reuters is reporting that IPO could give the company a market capitalization of$1 trillion. Earlier this week, OpenAI said it completed a restructuring into a more traditional corporate organization, which could make an IPO possible. OpenAI was most recently valued at$500 billion in an employee share sale. Well, Nathan, Elon Musk's$1 trillion pay package is being opposed by the biggest pension plan in the U.S. California Public Employees Retirement System is planning to vote against Musk's compensation agreement. A spokesperson for CalPERS said the CEO pay package proposed by Tesla is larger than pay packages for CEOs and comparable companies by many orders of magnitude.

7:28CalPERS owns about 5 million shares in Tesla. All right, let's turn to the economy now, Karen, and the latest decision from the Federal Reserve for the second meeting in a row. The Fed has cut interest rates, but Chair Jay Powell is cautioning investors against assuming another interest rate cut is coming in December. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a pre-set course. J-PAL's comments came after the Fed voted 10-2 to lower rates by a quarter of a point.

8:06For the first time in six years, there were descents in both directions. One official advocated a larger reduction. Another preferred to stay on hold. In Asia, Nathan, the Bank of Japan policy board left its benchmark interest rate unchanged in a vote that offered no new hints on when it might hike. And the BOJ held its policy rate at 0.5 percent. And we get another rate decision later this morning, Karen, from the European Central Bank. economists predict the ECB will keep its interest rate unchanged for a third straight meeting. Time now for a look at some of the other stories making news in New York and around the world.

8:41And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. The devastation from Hurricane Melissa has resulted in at least 33 deaths across the Caribbean, with powerful winds tearing apart homes and buildings and knocking out electricity. Andrew Holness is Jamaica's Prime Minister. I would say about 80 to 90 percent of roofs were destroyed. Hospitals destroyed, libraries, police stations, fort houses, urban infrastructure destroyed. Economic losses in Jamaica are estimated to be$7.7 billion. Melissa is moving away from the Bahamas. More with Bloomberg meteorologist Craig Allen.

9:21Fortunately, the forward speed has picked up, now moving north-northeast at about 20 to 25 miles per hour and increasing. Next up, unfortunately, Bermuda. The storm will probably pass just to the west of the island rather than a direct hit, but now less than 800 miles away, and it will pass with hurricane conditions for Bermuda during Thursday night into early Friday. Thank you, Craig. The government shutdown is now in its 30th day. More than 40 million Americans are expected to lose food benefits this Saturday. This Pennsylvania widow says losing SNAP will force her to choose. Either we eat or we don't have electricity or we don't have gas.

10:01Republicans are blaming Democrats for the shutdown. Democrats say Republicans have refused to address health insurance premiums. A Paris prosecutor says five more people have been arrested in the investigation into the theft of crown jewels from the Louvre Museum. But the treasures remain missing. The prosecutor says two suspects in the jewel heist have admitted their involvement in the theft. They were handed preliminary charges for theft committed by an organized gang and criminal conspiracy. It took the thieves less than eight minutes to steal the jewels valued at$102 million. Global News 24 hours a day and whenever you want it with Bloomberg News Now.

10:40I'm Michael Barr and this is Bloomberg, Karen. All right, Michael Barr, thank you.

10:48Time now for the Bloomberg Sports Update. Here's John Stashauer. John, good morning. Good morning, Karen. Dodger fans are known for being stuck in traffic, arriving to games late. And that happened last night. Those fans missed an unprecedented start to a World Series game. Game five is underway with a fly ball to deep left. Gone! The first pitch of the ball game. And Davis Schneider has hit it out. On Sportsnet Canada, a leadoff home run has happened before, even on the first pitch. Derek Jeter did that in the 2000 Subway Series. But when Vladimir Guerrero Jr. homered two pitches later, that made for World Series history.

11:28In a 2-0 lead that Toronto never gave up. A night after the Blue Jays beat the Dodgers 6-2, they won 6-1. And now head home, up 3-2 in the series. Another pitching gem by their 22-year-old rookie, Treyas Savage. The Yankees and the ALDS couldn't get a hit off him. The Dodgers only got three. A savage struck out 12. His manager is John Snyder. It's one thing to be in the zone, and it's another thing to be in the zone and get some swing and miss. So slider and split were electric. You know, I said it before the game. It's a different pitcher when he has his stuff. You know, game one didn't have a feel for his split.

12:07So I'm kind of blown away at what he did. The good news for the Dodgers, the Ashanobu Yanomoto will start game six tomorrow. He's had complete game victories in his last two starts, and if L.A. stays alive, it's game seven Saturday. The Nets are 0-5, and Brooklyn lost to Atlanta 117-112. Michael Porter led the Nets with 32 points. In Boston, Jalen Brown scored 30. Celtics beat the Cavs by 20. Indiana went to game seven of the finals last year. They're 0-4 this season, a two-point loss in Dallas. Lakers are playing without both LeBron James and Luka Doncic, but Austin Reeves just had a 51-point game in last night.

12:41scored at the buzzer for a Laker win at Minnesota. The Bulls beat Sacramento to go to 4-0. John Stashauer, Bloomberg Sports, Karen Nathan. Stay with us. More from Bloomberg Daybreak coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders.

13:27These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophorus.

14:03Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts.

14:38Bloomberg Surveillance, essential listening each and every business day.

14:47Coast to Coast on Bloomberg Radio. Nationwide on Sirius XM. and around the world on Bloomberg.com and the Bloomberg Business App. This is Bloomberg Daybreak. Good morning, I'm Nathan Hager. On a scale of 1 to 10, he rated a 12. That was what President Trump said after his long-awaited meeting on trade with Chinese President Xi Jinping. It was an outstanding group of decisions, I think, that was made. A lot of decisions were made, too. There wasn't too much left out there. That was President Trump on Air Force One after his nearly two-hour face-to-face with the Chinese leader in South Korea. Joining us for some more details on what came out of it is Bloomberg News global trade czar, Brendan Murray.

15:29And Brendan, it seems like we're getting kind of a drip-drip of headlines on some of the details coming out of this encounter. Walk us through what we've learned of what we know so far. Good morning. Yeah, basically it means we're not headed into a big trade war with China over the next year. They've agreed to what they're calling a one-year truce. from the U.S. side. The U.S. gave up the following concessions. They agreed to lower the fentanyl tariffs on Chinese imports from 20 percent to 10. They're suspending an expansion of its U.S. entity list. That's a list of Chinese companies that are barred from doing some commerce with U.S.

16:06companies. They're suspending that expansion, and they're also suspending the threat of Trump's 100 % tariffs on Chinese goods is also off the table. On the Chinese side, they agreed to suspend the tougher rare earth controls that they had threatened a couple of weeks ago. That was going to disrupt the global supply chain for everything from defense systems to just everyday electronics. And China also agreed to buy more U.S. soybeans, something they haven't done over the past several months in protest of Trump's tariffs on the world's second largest economy. They also agreed to suspend ship fees on each other.

16:43The U.S. was putting fees on Chinese ships that would dock at U.S. ports, and China reciprocated, doing the same to American flagships. So they're suspending those for a year. And lastly, they agreed to work together to resolve the TikTok ownership situation. So there were quite a few things on the table. None of these would be considered to be game changers in the overall relationship between the U.S. and China, but But these were sticking points that were leading to tensions that could have escalated into something a lot worse. But they seem to have, President Xi and President Trump seem to have settled things down for at least a year.

17:20So it sounds like it opens the door at least to getting some kind of resolution around some of those issues you mentioned, like the TikTok situation. But it was interesting, Brendan, because, you know, going into this meeting, President Trump kind of surprised Wall Street with this idea that he might talk about China's Blackwell chip. Apparently that did not come up. Yeah, that's that's the reporting that we that we're getting. We'll still get some readouts from U.S. officials as President Trump flies back to the states today. today. But as far as we know, the initial reporting that we have is that that wasn't an issue of any substantive discussion.

17:58But of course, it will be on the table in the talks going forward. This isn't the end of the U.S.-China trade tensions. This is going to play out. At the moment, things have stabilized. But as we've seen recently, things can escalate pretty quickly. And, you know, we're right back where we were with, you know, threats on both sides. And I guess there's a possibility that we could see even more headlines coming because we just had a social media post from the president talking about China purchasing more U.S. energy, not just soybeans. What more do we know about that? Yeah, this, you know, the details are still fuzzy.

18:37It probably involves some projects in Alaska. But the ability of President Trump to get China to buy these kinds of things is a big part of what he's promised. And, of course, his first trade deal with China five and a half years ago during his first term had a lot of these kinds of things, these purchases. $200 billion worth of purchases were agreed to back then. And so delivering those kinds of pledges are definitely high on President Trump's list of goals to accomplish with China. So we have about a minute left here, Brendan. Where does this leave the U.S.-China relationship? Is it progress?

19:17Is it back to where we were with Trade War 1.0? Where would you put it on that scale? It feels like we're in for a longer period where it's going to take a lot of management to keep this relationship on an even keel. Both sides agreed that talking is the best way to maintain that sort of stability. And so it feels like they're not going to walk away from this piece and the document that they've signed with things fixed and resolved. And we move into a new era of U.S.-China relations. It's going to take some micromanaging, it feels like, to keep it from escalating. And, you know, of course, you know, we've got, you know, countries in Southeast Asia who now have new tariffs on them.

20:08And the Europeans are also looking at this carefully and trying to weigh up how they're going to respond to China. So it's it just it just all it sets the table for, you know, more drama in the future for for the trade relationship. Thanks, Brendan. As always, that's Bloomberg Global Trade Czar, Brendan Murray. Karen. Nathan, let's repeat some of our top stories this morning. The Fed cut interest rates a quarter point for a second straight meeting, but one voter dissented in favor of a half point cut while another voted for a pause. Chair Jay Powell says a December cut is not a foregone conclusion.

20:45Hurricane Melissa has moved past Jamaica, Haiti and Cuba, leaving at least 33 dead and almost $8 billion in damage. And a prominent Senate Democrat says there have been no formal discussions on ending the government shutdown, New Hampshire's Jean Shaheen tells Bloomberg News it's not clear how the standoff will end. And we have more on those stories coming up on Bloomberg Daybreak. But right now, we continue to watch shares of a trio of tech heavyweights after they reported earnings after the closing bell. And right now, shares of Meta, they are down more than 7.5%. Microsoft shares, they're lower by almost 3%.

21:22And Alphabet, those shares are higher, up 7.5%. We want to take a closer look now with Bloomberg's Kreeti Gupta. Kreeti, good morning. And let's just start with your takeaway because we're getting real different investor reaction here. Good morning. We absolutely are. I mean, we'll start with the positivity. It's always good to start with some sunshine. Alphabet is having a really great day. G-O-O-G is your takeover. The share is just on a tear this morning. There's a couple of things to know about the cloud space, and this is perhaps where Microsoft is feeling a little bit of the pinch. There are a couple of major players when it comes to cloud and ultimately the technology used to get to AI.

22:00And Microsoft and Amazon Web Services have just dominated the space for such a long time. They have the majority of market share. But Alphabet, or Google, comes in third. And they've been, alongside Oracle, trying to kind of build up that market share. And that's what investors are rewarding them for this time around. Their sales are beating on that cloud unit growth. And that is a very important piece for Alphabet because this is a company that traditionally has gotten a good chunk of its revenue from ad spend. Think YouTube, think social media, think the Google search engine as well. That's kind of where it's gotten the majority of its gains from.

22:35And so the fact that you are now is going to see it kind of actively be viewed in cahoots or in competition with the likes of Microsoft and Alphabet, Amazon, excuse me, is a very big sea change in terms of how this share price is going to be looking. And that's kind of what is getting this kind of Wall Street equivalent of a round of applause for the Alphabet shares. That being said, it's those exact same concerns around the buildout and the execution for the cloud unit that is weighing on Microsoft. Because look, Microsoft has this incredible reputation of just beating their expectations quarter after quarter after quarter.

23:11They're the A++ student. So how do you beat, how do you get a better grade when you're already an A++ student? And that's what Microsoft has kind of struggled with today. It looks like they came out with earnings that didn't meet those enormous expectations that they've kind of attuned the market to. And you're starting to see those results, which were still fairly good, just not as good as expected. And that's really what it's getting punished for. But again, a 3 % drop for Microsoft is nothing compared to the 7 % drop you're seeing in meta platforms, which again comes to a question of this massive AI spend that's starting to worry a lot of investors that have maybe seen this picture before, given that Meta did this big push for the metaverse and they kind of had to reel it back.

23:51So there are some questions about the execution when it comes to Meta. Okay, but let's talk about that AI spend in general, because like all of these companies together, they racked up, what,$78 billion in CapEx last quarter. That's a big number. According to us, it's 89 % higher from a year ago. So let's talk about that number. Why? Why? Why such a push and why so much money? Well, it's really interesting because when you think about technology stocks or growth stocks broadly, you don't think about CapEx. In fact, they're rewarded for not being value intensive. Think of up here like an ExxonMobil or Chevron where they need to buy physical equipment to do oil drilling.