China’s Monetary Policy Shift and Alphabet’s Quantum Leap

WEEKLY UPDATE

Stock Market Decline and Expected Rate Cuts

This week, the spotlight was on Europe, where the ECB, as expected, cut interest rates by 0.25%, bringing them to 3%. The central bank also signaled more rate cuts ahead, highlighting that it views weak economic growth as a bigger threat than rising inflation.

Stock markets had a lackluster week, with the S&P 500 and Germany’s DAX ending flat, while the Nasdaq gained a modest 1%. Meanwhile, long-term interest rates rose, and the U.S. dollar strengthened.

A Strengthened Dollar

The U.S. dollar has gained significant strength since Trump’s election victory. This is mainly due to the interest rate gap between the U.S. and Europe, where investors currently earn slightly more on dollar-denominated investments. Back in early August, market expectations pointed to significant rate cuts in the U.S., with as many as six reductions priced in. Europe was also expecting rate cuts, with projections suggesting a rate of around 2%.

Since then, key economic indicators in the U.S. and Europe have diverged. In the U.S., Trump’s tax cut and deregulation plans have boosted optimism, leading to expectations of higher interest rates. As a result, investors now prefer USD over EUR, betting on better returns.

China Responds to Tariffs

This week, Chinese authorities surprised the market by announcing a shift to a “moderately loose” monetary policy, their first adjustment in 14 years. This move underscores the severity of China’s economic challenges. Measures include substantial central bank purchases of government bonds, aggressive rate cuts, and lower reserve requirements for banks.

This stimulus could also help offset U.S. tariff threats expected in 2025. A weaker yuan would make Chinese exports cheaper for U.S. consumers, potentially neutralizing the impact of higher tariffs.

Alphabet Hits Record High

Alphabet, the parent company of Google, reached an all-time high on Wednesday after two consecutive days of good news. On Monday, the company unveiled the Willow chip, a breakthrough in quantum computing capable of solving problems in minutes that would take today’s most advanced computers billions of years. While commercial applications are still years away, the announcement affirmed Alphabet’s leadership in computational power.

On Wednesday, Alphabet introduced Gemini 2.0, the latest upgrade to its AI platform, further driving its stock price higher. Gemini 2.0 will likewise be the cornerstone of Android XR, a new platform designed to compete with Apple's VisionOS.

NDI-FUTURETECH

Up 48,5% in 2024

It was a slight down week for NDI-FutureTech, primarily due to corrections among younger tech companies following their sharp post-election gains.

However, semiconductor stocks remain an important part of the Smart Portfolio, especially in the AI and data center segments. Even so, parts of the semiconductor industry outside AI haven’t performed as strongly, as the market waits to see how U.S.-China trade relations will evolve under the new administration.

Zooming out, the non-AI chip sector has massive long-term growth potential. These chips power sensors in vehicles, industrial equipment, and everyday applications, all of which will become increasingly advanced. This segment is a key long-term bet for NDI-FutureTech, and we are steadily accumulating shares during weak quarters.

Data Center Expansion Powers Ahead

Last week, we highlighted how companies like Credo Technology and Marvell are reporting strong demand for data center expansion. This week, Broadcom posted a 150% revenue increase in its AI-related business, with CEO Hock Tan describing the AI opportunity over the next three years as “massive.”

Broadcom and Marvell play key roles in Big Tech’s custom silicon efforts, designing specialized chips for data centers and enabling high-speed data transmission. NDI-FutureTech is well-positioned across the data center value chain, and we are using dips to strengthen our investments.

Autonomous Tech in the Spotlight

Tesla’s stock surged this week, while Alphabet’s Waymo reached all-time highs, reflecting growing market interest in autonomous technology.

NDI-FutureTech is currently heavily overweight Tesla having bought in at attractive levels, but we also hold stakes in other key players, including Amazon and Qualcomm.

With self-driving technology nearing rollout, we expect increased market attention in the coming year.

LOOKING AHEAD

The Fed Rate Cut Expected

Astute readers of this LinkedIn Newsletter will notice that this headline is nearly identical to last week’s. The only difference is swapping out the ECB for the Fed. However, beyond the fact that the Fed will also announce a rate cut at their meeting on Wednesday, the similarities between the two central banks largely end.

Unlike Europe, where economic data has disappointed, the U.S. has shown strong numbers since the Fed’s 0.5% rate cut in September. Back then, the Fed’s own rate projections suggested a total reduction of 100 basis points, or 1 percentage point, by the end of the year, with another 100 basis points to follow in 2025—bringing rates down to 3.5%. To hit the 100-basis-point target for this year, we expect the Fed to deliver a 0.25% cut at Wednesday’s meeting.

Looking ahead to 2025, however, it appears unlikely that the Fed will implement the projected cuts in full, simply because the U.S. economy has shown greater resilience. In September, the Fed forecasted GDP growth at 2%, inflation at 2.6%, and an unemployment rate climbing to 4.4%. Instead, we’ve seen growth significantly outperform September’s expectations, inflation ticks slightly higher, and, most importantly, unemployment remains relatively stable. This suggests that the Fed may adjust its 2025 projections to a maximum of 50 basis points in cuts.

Micron Earnings

Next week offers one key earnings report for tech investors: Micron Technologies will release its Q1 2025 results on December 18. Together with Samsung and SK Hynix, Micron dominates the memory chip market and is expected to maintain the positive momentum from last quarter, when it significantly exceeded market expectations.

Should Micron underperform slightly relative to forecasts, we see this as a clear buying opportunity. Variations in quarterly results are common and do not detract from the long-term case for HBM chips, which are critical for AI applications.

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