NVDA Global Earnings Catalyst as U.S. Trade Tensions with China, Canada Intensify

**SPEAKER_1** (0:00)
Welcome back to Morning Trade Live. It's time now for the big picture. Let's welcome in the team from Charles Schwab. We are joined today by Michelle Gibley, Director of International Equity Research and Strategy, Schwab Center for Financial Research, and Kasey McCurdy, Chief Portfolio Strategist, Schwab Wealth Advisory. Thank you to both of you for joining me today on what is a very busy day, even though we haven't even got to the big catalysts yet this week. Michelle, let's kick things off with you. Just given what I was speaking to Peter Chir about, I mean, there is a lot going on with respect to what Besson is doing over in Iran, what's happening in China, what's happening up north with Canada as well. I mean, obviously, we're starting to see the administration, various countries, trading partners, pick further trade wars. It doesn't look like that's going away anytime soon. How are you tying everything together right now, given the latest tariff threats?

**Michelle Gibley** (0:49)
Yeah, I think the first one is probably US and Canada. Over the weekend, talks broke down and tariff rates are escalating again, but there's really no winners in a trade war. The losers are going to be consumers in both countries because tariffs do contribute to higher inflation. Then in China, there's reports that the US is planning an additional tariff on Chinese imports over excess manufacturing capacity. That could bring the combined tariff to 20 percent. That's the maximum level agreed to in May.
And then the sanctions on Iranian economic partners, the largest economic partner for Iran, is China.
And then we have Xi's visit next month, in about exactly a month. And that could really complicate that visit. But I don't think it's going to halt it. We could see some market volatility related to China, trade relations return, because China is unlikely to comply without the US making concessions elsewhere. But really a continued trade truce is in the best interests of both countries. I think for markets, as we've seen over the last 18 months, the earnings related to the AI buildout is really outweighing any tariffs in the minds of investors.

**SPEAKER_1** (2:05)
Yeah. And any threat of secondary sanctions, as we saw last night with China's foreign ministry, could make the picture pretty complicated as far as that trade truce with Beijing is concerned. Flipping over to you, Kasey, obviously a big week here and you've characterized it quite nicely actually. I'll read the note to our viewers here. You say that both sides this week will have the US AI investment equation on full display here. Nvidia being the numerator as far as giving investors the earnings, the demand, the evidence of the AI spending. Jackson Hole helps frame the denominator. Just walk us through that because it encapsulates what we're getting this week quite nicely.

**Kasey McCurdy** (2:44)
Well, school is starting, so I thought we'd start with a little bit of algebra. I like the idea of this numerator and denominator concept. You've seen with Nvidia that they are really the earnings story. We want to hear about the revenue. We want to acknowledge what the AI trade is doing there, the center of a lot of this.
On the denominator side, we have Kevin Warsh coming on Friday where he'll be speaking to Jackson Hole. The combination of the two is what we'd consider as the cash flow relative to the discount rate.
Kevin Warsh's comments will be interesting mostly because we've only heard from him a handful of times. The market is still trying to feel out exactly how he is thinking about the reaction function of the Fed. And this is another example. And this timing is interesting given what we've seen in the past week with the changes at the Treasury and with Scott Pesant. It'll be very interesting to see how he tries to navigate some of those difficult crosswinds.

**SPEAKER_1** (3:42)
Oh, absolutely. And Michelle, getting back to you, I mean, just switching gears to what we're seeing internationally as well. I've noticed that the FTSE 100 has been having a pretty good run as well of late. No doubt that's been supported by a lot of what's been happening internationally across that particular region. How are you looking at that as far as a portfolio diversifier, that neck of the woods, you and I were speaking about some strong earnings across that particular region as well, which has really helped propel the stocks.
Just walk us through how you're thinking about Europe.

**Michelle Gibley** (4:14)
Yeah, I think Europe is in some ways anti-AI trade, and we can have AI in our portfolio, and that's a good thing, but it doesn't need to be the only thing, and Europe is a nice portfolio diversifier. If we think about Europe's economy, I think it gets a lot of bad press, particularly in terms of China's negative impact on its economy, but I think it's really very well known at this point, and maybe a little overstated, and it's probably discounted in the price of the stocks. As you mentioned, earnings are being revised higher, and actually, Europe's earnings drivers are much broader than these industries facing direct Chinese competition. The biggest weights in the Europe index are financials and industrials. That's about half of the index, and then healthcare is the third largest sector. If we look at automotive companies, only 1% of market cap.