Trump issues ultimatum to Iran; Musk announces massive chip plan; AI advancements by major companies.

48-Hour Ultimatum: Trump Threatens to Bomb Power Plants, Iran Responds with Complete Closure of the Strait

On March 21, U.S. President Donald Trump issued a 48-hour ultimatum to Iran, demanding the reopening of the Strait of Hormuz or face bombings of its power plants. In retaliation, Iran proposed four measures, including a complete closure of the Strait, attacks on all Israeli power stations, destruction of U.S.-owned companies in the Middle East, and strikes on power plants in countries hosting U.S. military bases.

Goldman Sachs Analysis: Duration of Potential Conflict

Goldman Sachs warned in its latest macro report that global assets have only priced in inflation impacts, ignoring the severe consequences of high energy costs on economic growth. The report suggests that the deadlock in the Strait of Hormuz indicates that the conflict is unlikely to end soon, and a downturn in growth could be the next major market concern.

LNG Supply Crisis Approaching

The last batch of LNG shipments from the Persian Gulf is expected to arrive within ten days, leading to a potential supply cliff. Asian spot prices have doubled to $23, and Pakistan is set to face a complete gas shutdown by the end of the month. This energy crisis is projected to be a long-term structural disaster rather than a temporary shock.

Interest Rate Dynamics and Fed's Stance

On March 21, Federal Reserve Chair Jerome Powell expressed gratitude for receiving the Paul Volcker Public Integrity Award, emphasizing the importance of non-partisan service at the Fed. He noted that Volcker's courage in raising interest rates amid external pressures exemplifies the necessary long-term perspective in public service.

Market Reactions and Gold's Role

Energy Aspects' Amrita Sen and Jeff Currie highlighted that the current situation mirrors the COVID-19 pandemic, with significant supply disruptions. They believe that the financial markets are in denial about the supply shock, and a shift towards quantitative easing (QE) by central banks is inevitable. However, gold may not serve as an ideal hedge until QE is fully implemented.

Consumer Support Measures Announced

At the China Development Forum on March 22, Finance Minister Lan Fo'an announced measures to boost consumer spending, including a 250 billion yuan program for replacing old consumer goods and a 100 billion yuan fund to stimulate domestic demand.

U.S. Stock Market Decline

Last Friday, U.S. stocks fell sharply due to Middle Eastern tensions, with the Nasdaq dropping over 2%. Major tech stocks like Nvidia, Apple, and Tesla saw declines, while Chinese stocks such as Xpeng and NIO also faced losses.

Notable Developments in Tech and AI

Nvidia's CEO Jensen Huang announced that the company has surpassed $1 trillion in order visibility, marking a new era of AI where each engineer will manage multiple AI agents. Meanwhile, Elon Musk revealed plans for the largest chip factory, aiming for an annual capacity of 1 terawatt.

Market Movements in China

Xpeng Motors announced plans for mass production of its humanoid robot by the end of 2026, while Xiaomi and Alibaba saw significant investments from Hong Kong funds. Tencent's WeChat launched a new plugin, and Baidu's DuMate was fully launched, marking advancements in AI technology.

Earnings Reports and Future Outlook

Xpeng reported its first quarterly profit, while China Duty Free's net profit saw significant growth. Meanwhile, CF Industries benefited from rising natural gas prices amid the ongoing conflict in the Middle East.

Conclusion

The geopolitical situation in the Middle East remains tense, with Trump's ultimatum to Iran and potential implications for global markets. Investors are advised to monitor developments in the Strait of Hormuz and upcoming earnings reports from various companies.