Macron Meets Xi Jinping, Signs Deals in Beijing | Daybreak Europe 12/4/2025

Key Concepts

• Monetary Policy: Federal Reserve (Fed) rate cuts, Bank of Japan (BOJ) policy, European Central Bank (ECB) policy.
• Economic Indicators: U.S. private payrolls (ADP), nonfarm payrolls, jobless claims, inflation targets, GDP growth.
• Financial Markets: Global stocks (S&P 500, Nasdaq, Russell 2000, FTSE 100), bond yields (Japan 30-year), dollar strength, copper, gold, oil.
• Geopolitics: U.S.-China relations, France-China cooperation, Russia-Ukraine conflict, U.S.-Russia talks, India-Russia relations, U.S. tariffs.
• Artificial Intelligence (AI): AI chips (NVIDIA, AMD, Huawei), AI in enterprise (Salesforce), AI in consumer devices (Meta), AI in medicine (Basecamp Research), impact on jobs.
• Corporate Strategy: Divestment plans, cost reduction, productivity gains (Rio Tinto).
• Biotechnology: Curative therapeutics, protein design, gene insertion, genetic diseases, cell/gene therapies.

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Global Market Overview and Fed Expectations

Global stock markets are experiencing gains, primarily driven by weaker-than-expected U.S. private payrolls data, which has increased the odds of a Federal Reserve (Fed) rate cut next week. Markets are now pricing in more than a 90% chance of a quarter-point cut. The S&P 500 and Nasdaq saw modest gains, while the Russell 2000 outperformed, reflecting investor rotation into mid-cap stocks. FTSE 100 futures are up 27 points, though Nasdaq 100 futures are slightly lower. U.S. Treasury yields are up almost 2 basis points, indicating some selling pressure. The dollar is stronger, putting pressure on the Euro. Copper prices are back below $11,500, with Goldman Sachs stating that "the recent run-up is not based on the fundamentals" and does not expect much further upside.

Asian Market Performance and Central Bank Policies

Japanese assets are a key highlight, with a 30-year bond auction drawing the strongest demand since 2019. This led to the 30-year yield falling about four basis points. This strong investor appetite persists despite recent record-high yields and provides some relief amid concerns about potential Bank of Japan rate hikes. Japanese stocks are outperforming regional peers, gaining slightly less than 1%, also influenced by expectations of Fed rate cuts. The Chinese Yuan (Yen) is at its weakest bias since 2022, benefiting from easing U.S.-China tensions and increased buying of Chinese assets by investors.

Geopolitical Engagements: France-China and U.S.-Russia-Ukraine

French President Emmanuel Macron is on a three-day visit to Beijing, meeting with Xi Jinping to discuss a range of issues from trade to the war in Ukraine. The leaders signed 12 cooperation agreements covering areas like natural resources (including minerals for Europe), investments, social benefits, and aging. Macron also brought the heads of Airbus and a French Cognac company, aiming to negotiate a fleet of planes for a Chinese leasing company and push back on tariffs, making progress on food exports to China. A key goal for France is to rebalance its trade imbalance with China. China, in turn, seeks better business conditions for its companies in France and views Taiwan as a geopolitical issue with little room for negotiation.

Regarding the Russia-Ukraine conflict, President Trump stated that a meeting between his envoys (Jared Kushner and Steve Witkoff) and Vladimir Putin was "reasonably good," though he acknowledged the outcome is uncertain. Moscow has maintained hardline demands, and previous talks have been inconclusive. The envoys are set to meet a top Ukrainian negotiator in Florida, with future steps potentially depending on Trump's application of pressure.

U.S. Labor Market Weakness and Economic Policy Outlook

The U.S. labor market showed significant weakness, with ADP data indicating that companies shed 32,000 payrolls in November, the worst contraction since November 2023 and the fourth contraction this year. Small businesses (under 50 employees) were particularly affected, shedding 120,000 jobs. This data has solidified market expectations for a Fed rate cut, leading to dollar weakness and outperformance in small-cap stocks. The market sentiment is that the data is "just bad enough to keep the Fed cutting" rather than signaling a recession. While companies are not firing aggressively, jobless claims data suggests that those out of work are remaining unemployed for longer, posing a challenge for re-entry into the job market.

In U.S. economic policy, Scott Bessent is reportedly being considered for Director of the National Economic Council, a role that would consolidate oversight of Trump's economic policies. This move is linked to the potential appointment of Kevin Hassett as Fed Chair, which Trump is seriously considering. However, some bond investors are reportedly less enthusiastic about Hassett due to his close ties to Trump's economic agenda. Trump has also intensified his criticism of regional Fed presidents, arguing they are not truly representative of their regions (some coming from the New York Fed) and should break "Wall Street groupthink." He foreshadowed potential changes, including new residency rules requiring regional Fed presidents to live in their congressional districts for about three years, though this would require congressional approval.

Corporate Strategy: Rio Tinto's Divestment and Cost Reduction

Mining giant Rio Tinto announced plans to release $5 billion to $10 billion in cash proceeds from divesting assets that do not meet its investment thesis. The company aims for annualized productivity gains of $650 million by the end of the next quarter and a 4% reduction in unit costs by 2030. While these are significant figures, analysts noted the absence of a "big bazooka" in terms of immediate, large-scale headcount reductions. The company's stock is up over 20% year-to-date.

Macroeconomic Forecasts and Commodity Outlook (J.P. Morgan)

J.P. Morgan's Global Research Chair offered a slightly more hawkish outlook on Fed policy, expecting a 25 basis point cut in December and another 25 in January, but potentially rate hikes by early 2027. Despite this, the equity market is expected to cope, with businesses accustomed to 4% interest rates and double-digit earnings growth projected for 2027. The primary concern remains inflation, which is expected to miss its target for the fifth consecutive year. Strong growth data, driven by the "wealth effect" from robust equity markets, contrasts with weak employment data.

The AI story is seen as broadening beyond initial tech, impacting sectors like logistics and healthcare. With $500 billion from hyperscalers already in the pipeline and about one-third of global revenue this past year coming from AI business investment, the AI narrative is expected to remain strong into 2026 and 2027.

For Europe, the ECB is considered to be "in a good place" with inflation at 2%, anticipating faster growth and lower inflation. European earnings growth could reach around 13%. While political fragility is a constant watch, fiscal stimulus is expected to provide support. The Euro is expected to be in a dollar-weakening cycle, with a Euro-dollar target of 1.20, and fiscal impulse is seen as outweighing currency strength.

In commodities, J.P. Morgan is short on oil, forecasting prices structurally moving into the $50s per barrel over the next 18 months due to tremendous supply coming online and China's stockpiling. Conversely, they are bullish on gold, citing a strong structural story driven by demand, institutional support, and central bank purchases. The S&P 500 is projected to reach 7500.

The AI Landscape: Semiconductors, Enterprise, and Healthcare

NVIDIA recently secured a lobbying win as U.S. lawmakers excluded the "GAIN AI Act" from defense legislation. This act would have required chipmakers like NVIDIA and AMD to prioritize American customers for powerful AI chips before selling to China. NVIDIA CEO Jensen Huang, who met with President Trump, expressed uncertainty about China's acceptance of NVIDIA's H200 AI chips if U.S. restrictions are relaxed. He urged the U.S. not to abandon the Chinese market, stating, "We shouldn't concede the entire market to them... We ought to compete for it."

Meanwhile, China is actively developing its own AI chip capabilities, with a major producer reportedly planning to more than triple its AI chip output by 2026 to challenge Huawei Technologies and potentially replace NVIDIA in the Chinese market. This highlights China's ambition to catch up in the AI sector.

In enterprise AI, Salesforce issued a better-than-expected revenue outlook, projecting up to $11.2 billion by January, indicating success in persuading customers to adopt its AI tools. Meta is accelerating its push into AI-enabled consumer devices, having poached Apple's prominent design executive. Meta is also under scrutiny by the European Commission regarding its AI integration.

Geopolitical Tensions and Commodity Market Implications

The potential for a peace deal in Ukraine and Russia has implications for oil markets, as it could lead to an unwinding of sanctions or removal of the risk of further sanctions on Russian oil and gas, potentially driving prices down. OPEC+ has confirmed a pause in increasing output for the first quarter. U.S. crude inventories are expected to see a slight increase, less than anticipated. Chinese demand, a major factor, has not met market expectations and is projected to slow down, contributing to a potential "glut situation" and weighing on prices. A peace deal would further reinforce this oversupply and bearish market narrative.

India's relationship with Russia, particularly Putin's visit, is a delicate balancing act. India has strong defense and economic ties with Russia, especially in energy. Putin's visit defies Western isolation efforts, while Prime Minister Modi demonstrates an independent foreign policy. Trade, defense purchases, and energy deals are on the agenda, complicated by U.S. sanctions. Indian refiners are reportedly slowing purchases of sanctioned Russian oil but are still interested in unsanctioned Russian oil due to good discounts, navigating geopolitics while seeking the best prices. This could complicate India's negotiations for a trade deal with the U.S., which has imposed 50% tariffs.

In the copper market, Goldman Sachs remains skeptical about the sustainability of the recent price breakout. The focus is on the supply side, with expectations of Trump imposing tariffs on copper imports to the U.S., leading to metal flowing to the U.S. and potentially creating shortages elsewhere, thus driving up prices. Recent large outflows of metal, presumably to the U.S., support this tightness narrative, though skeptics believe the U.S. has sufficient metal and that these flows could be short-lived.

Innovation in AI-Driven Medicine: Basecamp Research

Basecamp Research, a London and Boston-based AI biotech firm backed by NVIDIA, has raised over $85 million and built the world's largest protein database, containing 12 billion protein sequences and growing rapidly. Their core proposition is to build "curative therapeutics" by designing cures from scratch, understanding a patient's condition, and designing interventions. This requires advanced AI models capable of reading and writing DNA, supported by entirely new datasets.

The company aims to address gaps left by Big Pharma, which struggles with the cost, lack of predictability, and lengthy development times for complex genetic diseases. Basecamp Research's data collection involves mapping evolution across 28 countries and five continents, a labor-intensive process that took five years and $85 million. Their core technology, "programmable gene insertion," could reduce the time from diagnosing a disease to designing a cure from nine months (with current technology) to a "handful of months." They anticipate seeing drugs based on their datasets on the market within a decade.

Basecamp Research collaborates with major pharmaceutical companies like AstraZeneca and GSK, focusing on treating underlying causes of diseases rather than just symptoms. They see the strongest commercial uptake in cell and gene therapies, both in design and manufacturing. Their revenue model is centered on developing cures for tens of thousands of genetic diseases and cell therapies that currently lack treatments, making patients less reliant on healthcare systems. They navigate ethical and privacy complexities by meticulously mapping data provenance and working with various groups to ensure scalability and shared benefits from commercialization. NVIDIA's support is "incredibly important" for training their enormous AI models. The U.K. is seen as benefiting from a "great depth of talent" in applied AI, though more government support is needed.

Market Sentiment and Labor Market Nuances

Jensen Huang's comments on AI's impact on jobs highlight that tasks will be "dramatically enhanced," some jobs will become "obsolete," new jobs will be "created," and "every job will be changed." The market's reaction to the weak private payroll data, particularly the Russell 2000's outperformance, reflects expectations of a more dovish Fed and rate cuts. This supports mid-cap stocks, which had previously stalled due to AI valuation concerns. While the NASDAQ 100 saw modest gains, investors are looking to rotate into these mid-cap names. The ADP report of 32,000 jobs eliminated in November, especially impacting small businesses, underscores the labor market's contraction. However, jobless claims data also indicates that while companies may not be firing as aggressively, those who are unemployed are remaining out of work for longer, posing a persistent challenge for the labor market.

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Conclusion and Key Takeaways

The global economic landscape is currently shaped by expectations of a dovish Fed, driven by weakening U.S. labor market data, which is fueling a rally in global stocks, particularly mid-caps. Geopolitical developments, including Macron's visit to China and ongoing U.S.-Russia talks, highlight efforts towards cooperation and conflict resolution, though significant hurdles remain. Commodity markets are influenced by these geopolitical shifts, with oil facing potential oversupply and gold seeing strong structural support. The AI revolution continues to expand, not only in semiconductors and enterprise applications but also profoundly transforming medicine, as exemplified by Basecamp Research's innovative approach to designing cures for genetic diseases. While the immediate future points to potential monetary easing and a broadening AI impact, underlying challenges in labor market duration and geopolitical complexities require careful monitoring.