The Biden administration is considering implementing country-specific caps on the export of advanced artificial intelligence (AI) chips produced by companies like Nvidia and Advanced Micro Devices (AMD).

This potential policy, driven by national security concerns, seeks to regulate how AI technologies are distributed globally, with a particular focus on limiting the AI capabilities of certain nations.

The move could place restrictions on exports to countries with growing AI ambitions, such as those in the Persian Gulf, where the appetite for AI data centers is rising.

The caps would form part of a broader strategy by the US to maintain its technological edge while preventing AI technologies from being used in ways that could pose risks to global security.

Tighter controls to build on existing chip export restrictions

The proposed restrictions would add to existing limitations on AI chip sales, which initially targeted China.

In 2021, the Biden administration introduced sweeping regulations that curtailed exports of AI chips to over 40 countries, citing fears that advanced technology could be diverted to China and other nations that could use it for purposes that counter US interests.

Under the new approach, the US Commerce Department’s Bureau of Industry and Security could set specific limits on how many AI chips can be exported to individual countries.

This would allow Washington to maintain stricter control over how nations use these technologies, ensuring that AI development aligns with the US’s national security objectives.

The agency has already introduced a framework to ease the licensing process for AI chip shipments to data centers in countries like the United Arab Emirates and Saudi Arabia.

These regulations, introduced last month, are part of an ongoing effort to strike a balance between fostering global AI development and maintaining control over the technology’s distribution.

AI export caps and broader diplomatic goals

Some US officials view semiconductor export licenses, particularly for Nvidia’s chips, as leverage in broader diplomatic efforts.

In addition to containing China’s AI capabilities, the US is considering using export restrictions to encourage key global players to reduce their dependence on Chinese technology.

The discussion comes as countries worldwide pursue “sovereign AI,” aiming to develop their own AI systems independently of foreign technology.

As demand for AI processors surges, Nvidia’s chips have become indispensable for data-center operators, making the company a central player in the global AI market.

However, US officials are wary of how nations might use these powerful chips, particularly in countries with extensive surveillance systems that could use AI to bolster internal control.

Tarun Chhabra, senior director of technology at the US National Security Council, emphasized the need for caution in exporting AI chips, especially to countries with robust internal surveillance apparatus.

The concern is not only about the risks to human rights but also the potential impact on US intelligence operations abroad.

Risks of foreign AI development and global competition

Another concern driving the proposed caps is how global AI development could impact US security.

Although countries like China are working to develop their own advanced semiconductors, their chips still lag behind top American offerings.

However, the US fears that if foreign companies like Huawei eventually catch up, it could weaken America’s influence in shaping the global AI landscape.

Some officials argue that this is a distant concern, suggesting that the US should adopt a more restrictive approach to chip exports while it still holds a competitive advantage.

Others caution that making it too difficult for countries to access US technology could push them to seek alternatives, potentially aiding China’s rise in the sector.

Challenges in enforcing AI chip export restrictions

Implementing country-specific caps on AI chip exports could be a significant challenge for the Biden administration.

Drafting a comprehensive policy, enforcing it, and managing the potential diplomatic fallout would be difficult, especially in the final months of President Biden’s term.

It’s unclear how chipmakers like Nvidia and AMD would react to the proposed rules, as they have significant stakes in global markets.

In 2022, when the Biden administration first issued regulations limiting AI chip exports to China, Nvidia quickly redesigned its offerings to continue selling in the Chinese market.

A similar response could be expected if new country-based caps are introduced.

Despite the ongoing deliberations, the Biden administration has already slowed the approval of high-volume AI chip exports to regions like the Middle East.

However, there are signs that things may change soon.

The new rules for shipments to data centers allow for specific customers to be pre-approved based on security commitments, which could make it easier to issue licenses in the future.

Balancing AI innovation with national security

As AI technologies continue to advance, the US is working to balance fostering innovation and collaboration with the need to protect national security.

The potential caps on AI chip exports reflect growing concerns about how AI could be used in ways that may not align with US interests.

As the global AI race intensifies, it remains to be seen how the US will manage its technological dominance while navigating complex international relationships.

The success of this policy will hinge on its ability to protect US security while still allowing American companies to thrive in a competitive global market.

The post Why is US planning country specific cap on AI chip exports by Nvidia and AMD? appeared first on Invezz

The International Monetary Fund (IMF) announced on Tuesday that global public debt is expected to surpass the $100 trillion mark this year for the first time.

This increase may be more rapid than previously anticipated, driven by a political climate favoring increased spending and the pressures of slow economic growth that heighten borrowing needs and costs.

According to the IMF’s latest Fiscal Monitor report, global public debt is projected to reach 93% of the world’s gross domestic product (GDP) by the end of 2024, with estimates suggesting it could approach 100% by 2030.

This figure would exceed the 99% peak observed during the Covid-19 pandemic and marks a 10 percentage point increase since 2019, prior to the surge in government spending caused by the health crisis.

As the IMF prepares for its annual meetings with the World Bank in Washington next week, the Fiscal Monitor report highlights significant factors that could drive debt levels even higher than current forecasts.

Notably, there is a growing appetite for spending in the United States, the world’s largest economy.

The report states:

Fiscal policy uncertainty has increased, and political red lines on taxation have become more entrenched. Spending pressures to address green transitions, population aging, security concerns, and long-standing development challenges are mounting.

Impending US election and spending promises

Concerns regarding rising debt levels coincide with the upcoming US presidential election, where candidates from both major parties have proposed new tax cuts and spending initiatives that could substantially increase federal deficits.

Republican candidate Donald Trump’s proposed tax cuts are estimated to add approximately $7.5 trillion in new debt over the next decade, significantly more than the $3.5 trillion anticipated from the plans of Democratic nominee Vice President Kamala Harris, according to estimates from the Committee for a Responsible Federal Budget (CRFB), a budget-focused think tank.

The IMF report also notes a trend where debt projections frequently underestimate actual outcomes, with realized debt-to-GDP ratios five years out averaging 10% higher than initial forecasts.

Additionally, weak economic growth, tighter financial conditions, and heightened fiscal and monetary policy uncertainty in critical economies like the US and China could further exacerbate debt levels.

A “severely adverse scenario” included in the report suggests global public debt could reach 115% within just three years, significantly above current estimates.

The IMF reiterated its call for enhanced fiscal consolidation, indicating that the current favorable economic environment, characterized by solid growth and low unemployment, presents an opportune moment to implement such measures.

However, it warned that current efforts—averaging 1% of GDP from 2023 to 2029—are insufficient to stabilize or reduce debt levels effectively.

To achieve this stabilization, a cumulative tightening of 3.8% would be necessary, particularly in the U.S., China, and other nations where debt levels are expected to keep rising.

The Congressional Budget Office anticipates that the U.S. will report a fiscal deficit of about $1.8 trillion for 2024, representing over 6.5% of GDP.

Countries such as the U.S., Brazil, the United Kingdom, France, Italy, and South Africa, which are projected to experience ongoing debt growth, may face severe repercussions if corrective actions are delayed.

“Postponing adjustment will only mean that a larger correction is needed eventually,” stated Era Dabla-Norris, the IMF’s deputy director for fiscal affairs.

Waiting can also be risky, because past experience shows that high debt and lack of credible fiscal plans can trigger adverse market reactions and limit countries’ ability to respond to future shocks.

Dabla-Norris emphasized that cuts to public investment or social spending tend to have a more detrimental impact on growth than poorly targeted subsidies, such as those for fuel.

Some nations have the capacity to broaden their tax bases and enhance tax collection efficiency, while others can make their tax systems more progressive by improving taxation on capital gains and income.

The post Will global public debt exceed $100 trillion this year? IMF warns of rising economic pressures appeared first on Invezz

The US dollar on Tuesday reached a peak not seen in over two months against several major currencies, driven by increasing speculation that the Federal Reserve will implement moderate rate cuts soon.

Concurrently, the yen inched closer to the critical threshold of 150 per dollar.

In early Asian trading, the euro remained stable but lingered near its lowest point since August 8, which it hit on Monday.

This comes just ahead of the European Central Bank’s policy meeting scheduled for Thursday, where expectations lean toward another interest rate reduction.

Recent US economic indicators suggest resilience, with a modest slowdown observed.

Additionally, inflation for September exceeded predictions slightly, prompting traders to reduce their forecasts for significant rate cuts by the Fed.

The Federal Reserve initiated its easing cycle with an aggressive 50 basis points reduction during its September meeting.

Currently, market expectations suggest an 89% likelihood of a 25 basis points cut in November, with 45 basis points of total easing anticipated for the remainder of the year.

The dollar index, which gauges the currency’s performance against six others, was last recorded at 103.18, just below the 103.36 peak reached on Monday—its highest since August 8.

The index has gained 2.5% and appears poised to end a three-month decline.

A boost for the dollar came after remarks from Fed Governor Christopher Waller on Monday, who urged a cautious approach to future interest rate cuts, referencing the latest economic data.

Waller stated, “Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year.”

Waller also noted that recent hurricanes and a strike at Boeing could complicate job market data, potentially lowering October’s monthly job gains by more than 100,000.

The next non-farm payrolls (NFP) report is scheduled for early November.

Chris Weston, head of research at Pepperstone, remarked:

Most knew that recent disruptions would result in the NFP print being a messy affair, but Waller’s comment goes some way in quantifying the sort of disruption we can expect. Essentially, with the next NFP so distorted, the market won’t have the same level of control in pricing risk into the November FOMC meeting.

The dollar’s recent ascent has negatively impacted the yen, especially following a dovish pivot from Bank of Japan Governor Kazuo Ueda and unexpected resistance to further rate hikes from new Prime Minister Shigeru Ishiba.

These developments have raised questions about the timing of future policy tightening by Japan’s central bank.

In early trading, the yen was valued at 149.55 per dollar, having reached a 2.5-month high of 149.98 on Monday, a day when Japan was closed for a holiday.

The last instance of the yen hitting the 150 level was on August 1.

The Australian dollar remained steady at $0.67275, while the New Zealand dollar dipped 0.13% to $0.6089. The euro was last quoted at $1.090825.

Meanwhile, the offshore yuan in China showed little movement at 7.0935 per dollar, following a report by Caixin Global indicating that China might issue an additional 6 trillion yuan (approximately $850 billion) in Treasury bonds over the next three years to stimulate its sluggish economy.

Tony Sycamore, a market analyst at IG, noted that market sentiment is shifting toward the expectation of fresh stimulus measures, potentially to be discussed at the China National People’s Congress standing committee meeting later this month.

The post Dollar hits two-month high as yen nears 150/$ amid rate cut speculation appeared first on Invezz

Gold prices extended their losses on Tuesday as a strong dollar against a basket of major currencies dented demand for the precious metal. 

A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies, denting demand. 

Gold prices on COMEX have been hovering around $2,600 per ounce for the last few sessions as the bullish movement takes a breather. 

At the time of writing, the most-active December contract of gold on COMEX was at $2,664,90 per ounce, down 0.1% from the previous close. 

Dollar gains on reduced US rate cut bets

Gold has been struggling to surpass its September peaks, when prices rose to $2,696,90 per ounce. 

The dollar has gained sharply over the last few sessions as investors expect the US Federal Reserve to not cut interest rates by a larger percentage like its previous meeting. 

In the US, hotter inflation and a resilient labour market have reduced bets of a larger interest rate cut by the Fed. 

Investors now expect the Fed to cut rates by 25 basis points at its November meeting. In September, the US central bank had cut rates by 50 bps, surprising the financial and commodities market. 

The dollar extended its previous week’s gains, and hit its highest level in over two months after Fed Governor Christopher Waller urged “more caution” on rate cuts ahead, citing recent economic data. 

“Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year,” Waller added.

Easing Middle East tensions

Gold bulls are also facing some pressure from easing tension in the Middle East as the world waits for Israel’s retaliation against Iran after the latter attacked Tel Aviv on Oct 1. 

Gold prices are likely to face some headwinds after the Washington Post reported that Israeli Prime Minister Benjamin Netanyahu told the US that Israel would target the Iranian military, not nuclear or oil facilities. 

The report suggests that there will be a more limited counter strike aimed at preventing a full-scale war. 

However, there has not been any escalation so far since Iran fired ballistic missiles towards Israel on October 1. This has somewhat diffused the tensions in the region. 

Technical outlook for gold prices

According to Fxstreet, gold prices have support above the key 21-day simple moving average (SMA) at $2,635 per ounce for the rest of this week. 

The 14-day relative strength index (RSI) holds firm, indicating that any drop in prices could be a good buying opportunity for traders, Fxstreet said in a report. 

If the gold price rebound from their current slumber, the next target could be around $2,700 per ounce. 

Dhwani Mehta, senior analyst at Fxstreet said in a report:

Conversely, the immediate support is seen at the 21-day SMA at $2,632, below which the three-week lows near the $2,600 threshold will be tested. 

“A sustained break below the latter could extend the downside toward the September 20 low of $2,585,” she further said. 

The post Gold prices continue decline as bulls face challenges in breaking current range appeared first on Invezz

Investors are currently focused on defensive trades, missing out on the strength of the economy, according to a report from Morgan Stanley.

The firm has identified significant opportunities in underappreciated sectors, particularly within financial stocks.

Recently, Morgan Stanley upgraded cyclical stocks to an “overweight” position compared to defensive sectors.

The report emphasizes that net exposure to financials is alarmingly low, residing in the bottom 15th percentile of historical data dating back to 2010.

As illustrated in accompanying charts, the financial sector is the least owned compared to others.

Mike Wilson, the bank’s chief investment officer and head of US equity strategy, pointed out several factors that could positively impact financial stocks.

He stated:

In our view, this creates opportunity in [the financial] sector that we upgraded to overweight last week given: rebounding capital markets activity, a better loan growth environment in 2025, an acceleration in buybacks post Basel Endgame re-proposal, and attractive relative valuation.

Bank stocks have become increasingly appealing due to improved valuations following a de-risking phase last month, during which large-cap dealers expressed caution about their operating conditions.

This caution has led to lowered expectations for earnings season, allowing major lenders to surpass forecasts more easily.

Following the release of better-than-expected earnings reports last week, both JPMorgan and Wells Fargo have seen notable increases in their stock prices, rising by 3.8% and 8.8%, respectively, since Friday’s market open.

Despite these developments, Wilson observed a continued lack of market interest in financial stocks.

This trend extends beyond banking; investors are largely shunning other cyclical sectors, opting instead for defensive and quality stocks.

Utilities, healthcare, and real estate, which are considered defensive plays, account for some of the highest net exposure in investor portfolios.

Wilson contended that this positioning indicates investors are preparing for a soft-growth scenario, which seems increasingly unlikely based on recent macroeconomic trends.

Although Morgan Stanley had previously shifted to a neutral stance on cyclicals versus defensives at the end of last month, the firm upgraded cyclicals to an overweight position last week after the jobs report exceeded Wall Street expectations.

“As several key macro data points have come in better than expected (namely the jobs report and the ISM Services Index) following the Fed’s 50bp rate cut, cyclicals have begun to show relative strength,” Wilson noted.

Additionally, rising yields in the rates market suggest diminishing growth concerns.

The report indicates that cyclical sectors such as industrials, financials, and energy typically perform better when yields increase, while defensive stocks tend to decline in response to rising rates.

The post Are investors overlooking financial stocks in favor of defensive trades? Morgan Stanley thinks so appeared first on Invezz