This article summarizes recent insights regarding inflation, US-China trade relations, the US national debt, and developments in AI infrastructure, based on Aji's analysis.
Inflation Concerns and CPI Data
May CPI Data Analysis
Recent CPI data released by the U.S. Labor Department indicates a potential cooling of inflation. The CPI rate rose by only 0.1% in May, below market expectations. Similarly, the core CPI also showed a smaller-than-expected increase of 0.1%. This raises questions about the persistence and transmission of inflationary pressures.
Factors Affecting Inflation
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Energy Prices: A significant factor was a 1% overall decrease in energy prices, with gasoline prices declining by 2.6%. This decline has notably suppressed overall inflation, potentially linked to increased OPEC production.
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Vehicle Prices: Prices for both new and used cars fell, showing no immediate impact from potential car tariffs.
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Housing Costs: Housing costs, which make up a substantial portion of the CPI, showed a mild increase. Rent increases also slowed down, potentially providing a key factor in lowering future inflation.
Tariff Impact and Federal Reserve Response
FactSet's data suggests that the full impact of tariffs might not yet be reflected in inflation data. This could be due to businesses absorbing costs or using existing inventory. Nick, the successor to the US Federal Reserve, believes that the data will not change the Federal Reserve's position. Despite the positive data, the Federal Reserve is expected to maintain interest rates at the next meeting.
Aji speculates that the Fed may adjust its PCE forecast downward, potentially leading to more officials supporting interest rate cuts later in the year. Trump and Pence have pressured the Fed to lower interest rates, but the market anticipates the first rate cut in September. Aji believes the threat of tariff-induced inflation will diminish as the inflation rate continues to fall.
US-China Trade Relations
Trade Agreement Details
Trump announced a trade agreement with China, but details reveal complexities. Commerce Secretary Rodney Clark stated that the U.S. would not adjust current tariffs on Chinese goods, regardless of a signed agreement. While Trump emphasized tariffs on China, the White House clarified that this figure combines existing tariffs and additional taxes on specific products.
Rare Earth Supply Concerns
While Trump claimed that China will immediately supply necessary materials and rare earth minerals, the Wall Street Journal reported that China will only issue six-month temporary import permits to American companies. This creates uncertainty for American companies regarding long-term supply chains.
Impact on Investors and Industries
As long as there are no major problems with tariffs between China and the United States, then the overall market will be positive. The overall market will be more predictable. Companies reliant on rare earth elements, including Tesla and other electric car manufacturers, face increased risk due to potential supply disruptions. The effects will be more for smaller companies.
US National Debt
Deteriorating Fiscal Situation
The U.S. government's fiscal situation is deteriorating, with the deficit increasing significantly. The tax increase reflects from the side that the economy is good. The primary driver is increased expenses, particularly interest on debt. Tariff income, while up, barely makes a dent in the overall deficit.
Importance of Debt Auction
The upcoming 30-year state debt auction is critical. A poor result could trigger a rise in long-term interest rates, threatening the stock market. Stabilizing long-term debt may require the Federal Reserve to intervene with debt acquisition to improve market liquidity.
Jeffrey Gondelich anticipates a liquidity crisis due to rising long-term interest rates, potentially leading to interest rate control measures.
AI Infrastructure and Nvidia's GTC Conference
Huang Renxun's Keynote at GTC
Invita CEO Huang Renxun's speech at the GTC event in Paris emphasized the growing importance of AI infrastructure. He highlighted the shift from molecular dynamics to the current ecosystem of over 400 accelerators. Inuita is not building a chip, but restructuring a whole set of computing methods. Acceleration computing is not only as simple as letting the code run on the GPU, but needs to restart software logic from the basics.
Acceleration Computing and AI Development
Huang Renxun emphasized the importance of Inuita's software warehouses, including the new Kudaku platform for quantum computing. He envisions a future where every supercomputer includes a QPU. He divided AI development into three waves: perception, generation, and agent intelligence, focusing on how agent AI can perform complete projects like digital employees.
AI as a National Strategic Asset
Huang Renxun stated that AI infrastructure has become a national strategic asset. The AI data center is not for storing files, but for creating intelligence. He predicted that Europe's AI computing power will expand tenfold in the next two years, signifying competition in AI infrastructure.
Investment Implications
AI infrastructure is officially entering the national deployment stage. Trump's cancellation of AI expansion rules has benefited Inuita, allowing it to expand in the Middle East. The full chain of industrial opportunities for AI has been opened. For retail investors, Aji recommends continuing to look towards AIDA as the best landmark for AI.
Musk and Trump
Easing Tensions
Musk publicly regretted some posts about Trump last week. Musk and Trump are not entirely reconciled. Musk targeted the Republican's beautiful bill. The situation escalated later on when Musk threw out Eposan's scandal case and called for Trump's impeachment.
Efforts to Rebuild Relationship
Musk deleted many posts against Trump. Vice President Wallace and White House Secretary of State Reuters are the key people to rebuild the two. Trump's attitude also changed quietly. There are no plans to contact Musk, but he said he would answer if Musk called. He stated that the war between China and China should be eased.
Impact on Tesla
Tesla's political threat has also weakened. This also guarantees the future promotion of Tesla's unmanned driving business, which is definitely a boost to the stock price.
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