What are Trump and Xi cooking up?

On financial markets, the AI juggernaut is still offsetting a gloomy political and economic backdrop. With no one quite sure what will come out of the summit between Xi Jinping and Donald Trump, a degree of caution is setting in ahead of the final session of the week.

The average investor remains deeply ambivalent. While loudly insisting that the current environment is unsettling and uncertain, he is frantically buying anything linked to the artificial intelligence boom. The bond market, meanwhile, is firing warning shots. But bonds are famously dull and not always right, so whom should we believe?

AI is the tree hiding the forest. So much money is pouring into the sector that, for investors, it is both an extraordinary opportunity and a form of collective dash for the exit from harder questions. The issue lurking behind it all is this: what state would the US economy be in without this windfall? That may sound a slightly crude question, because the White House might not have pursued its current policies without the assurance that AI investment would flatter GDP. But it is still worth asking, because whole areas of activity are under pressure in the US, and may remain so if energy prices stay high.

For now, exuberance is everywhere. AI chip designer Cerebras made a spectacular stock market debut yesterday, ending its first session 68% higher on Nasdaq. That was almost written in the stars. Cisco jumped 13% after skilfully recasting its message around AI. The US group, whose shares are up 50% since 1 January, took nearly 26 years to regain its dotcom-bubble highs, stirring a few memories in the newsroom. Even the old economy is joining in. Ford has jumped 20% in two sessions. All it took for the shares to light up was for the carmaker to announce a new energy-storage battery business for AI. A business built, incidentally, with technology from China's CATL. But never mind the vintage, so long as the market gets its buzz. Exuberance, then, and apparently irrational. Not in the eyes of tech-friendly financiers, however, who see it as perfectly rational, or at least proportionate to the revolution under way.

What is undeniable is that a historic flood of capital is feeding the ecosystem and spilling over into related industries. The counterweight is geopolitics and its economic fallout. The war with Iran and the disruption of some commodity flows are sending shockwaves through markets, all pointing towards a chain reaction of price rises. US inflation is too high and threatens to create damaging imbalances in the United States: squeezed purchasing power, rising debt costs and constrained monetary policy.

This is where the China-US summit comes in, due to wrap up by the end of the day. Markets are looking to Donald Trump to come back with something deflationary: the outline of a trade deal, a Chinese commitment to help reopen the Strait of Hormuz, or anything else that would point to an easing of global price pressures. Treasury Secretary Scott Bessent has floated the idea of a mechanism to encourage Chinese investment and targeted tariff cuts. Donald Trump, for his part, has made a few claims that cannot yet be verified. He said China was prepared to help with negotiations with Iran and had pledged not to supply weapons to Tehran. The final statements from both sides may clarify matters. In the meantime, the US president has also declared, with his customary bravado, that the United States does not need Hormuz to reopen. In the end, oil remained stuck at elevated levels and a way out of the Middle East crisis still looks distant.

The direct economic translation of all this is that US bond yields are heating up again. The 10-year Treasury yield crossed 4.5% this morning, while the two-year yield is above 4% for the first time in 11 months. The CME FedWatch tool now assigns a 49.8% probability to a rate rise at the Fed's 9 December meeting. Polymarket puts it at 37%.

Across Asia-Pacific markets, economic fears regained the upper hand this morning. South Korea, always quick to exaggerate any move, is down 6.6%. Japan is off 2.0% and Hong Kong has shed 1.5%. India, as so often, is swimming against the tide, up 0.5%. Australia is down only 0.2%, but has risen just once in the past six sessions. Europe is expected to open in the red. US futures are lower too. The outcome of the US-China summit could yet confirm or overturn the morning trend.

Today's economic highlights:

On today's agenda: year-on-year industrial production in Switzerland; preliminary current account in China; housing starts in Canada; in the United States, the NY Empire State Manufacturing Index and month-on-month industrial production. See the full calendar here.

• GBP / USD: US$1.34
• Gold: US$4,573.65
• Crude Oil (BRENT): US$107.3
• United States 10 years: 4.52%
• BITCOIN: US$81,252

In corporate news:

• Colonial confirms its 2026 targets.
• Technoprobe reports first-quarter EBITDA of €69.2 million.
• Hargreaves Lansdown will cut jobs as part of its modernization plan.
• Accumulated losses by the travel group On The Beach have caused short interest to surge to over 5% of the share capital in the last 48 hours.
• Fitch raises Telecom Italia’s rating to ‘BB+’ with a stable outlook.
• Webuild announces €3 billion in new orders since the start of the year.
• KKCG Maritime’s attempt to reshuffle the board of directors at Ferretti narrowly failed.
• Cerebras Systems soared 68% to $311 on its Nasdaq debut (initial public offering price $185).
• Boeing is set to receive an order for 200 aircraft from China, according to Trump.
• Brookfield Corporation has acquired $2 billion worth of SpaceX shares.
• Live Nation announces the construction of a new indoor concert venue in Seattle.
• Biogen continues development of its experimental Alzheimer’s treatment despite failing a key endpoint in Phase II.

See more news from UK listed companies here

Analyst Recommendations:

• Unilever Plc: BNP Paribas maintains its neutral recommendation and reduces the target price from USD 65.70 to USD 64.70.
• Georgia Capital Plc: Keefe Bruyette & Woods maintains its outperform rating and raises the target price from GBX 4400 to GBX 12700.
• Lion Finance Group Plc: Keefe Bruyette & Woods maintains its outperform rating and reduces the target price from GBX 12500 to GBX 4400.
• Moonpig Group Plc: Berenberg maintains its buy recommendation and reduces the target price from GBX 330 to GBX 300.
• Pets At Home Group Plc: Berenberg maintains its hold recommendation and reduces the target price from GBX 220 to GBX 200.
• Wickes Group Plc: Berenberg maintains its buy recommendation and reduces the target price from GBX 280 to GBX 265.
• Aberdeen Group Plc: Citi upgrades to buy from neutral with a price target raised from GBP 2.25 to GBP 2.65.
• 3I Group Plc: Bernstein maintains its outperform rating and reduces the target price from GBX 5200 to GBX 3800.
• Hsbc Holdings Plc: Barclays maintains its overweight recommendation and raises the target price from GBP 15 to GBP 16.
• Standard Chartered Plc: Barclays maintains its equalweight recommendation and raises the target price from GBP 19.50 to GBP 21.
• Burberry Group Plc: UBS maintains its buy recommendation and raises the target price from GBX 1410 to GBX 1420.
• Premier Foods Plc: Deutsche Bank maintains its buy recommendation and raises the target price from GBX 240 to GBX 250.