Daily Briefing | 22 October 2026: Prospects for the resumption of trilateral Russia-Ukraine talks, security concerns in Saudi Arabia and further increases in AI capital expenditure

Automatically translated. Read the Chinese original.

Today's main theme

Over the past 24 hours, diplomatic détente and security escalations have occurred simultaneously, with the markets fluctuating between the two. Following talks between US Special Envoy Witkov and Putin in St Petersburg, the Kremlin indicated a willingness to resume trilateral US-Russia-Ukraine negotiations in November; almost simultaneously, the US ordered the evacuation of some diplomatic personnel from Saudi Arabia due to ongoing attacks by the Houthi rebels, causing oil prices, US Treasury yields and the US dollar to rise briefly. Turning to technology companies, Meta’s third-quarter revenue grew by 26 per cent, but substantial legal costs and full-year capital expenditure of nearly US$140 billion pushed free cash flow into negative territory; whilst Tesla’s profit margins rebounded, its operating profit fell sharply. China, meanwhile, is promoting the integration of scientific and technological innovation with industrial innovation through documents issued by the General Office of the Communist Party of China Central Committee and the General Office of the State Council, with the policy focus shifting towards the commercialisation of research outcomes and enterprise-led initiatives. In summary, the market must simultaneously factor in two key developments: when geopolitical risks will subside, and when investment in AI will translate into cash flow.

Key News

1. Putin meets with Witkov; Russia agrees to resume trilateral talks in November

US Special Envoy Witkov held talks with Putin in St Petersburg for approximately three hours on 21 October; this marked their ninth face-to-face meeting. Prior to the talks, the Russian side released Stephen Hubbard, a retired American teacher who had been detained. Kremlin aide Ushakov stated that Russia is prepared to resume trilateral talks with the US and Ukraine, possibly in mid-November and likely in Abu Dhabi; Zelenskyy also expressed his support, hoping that a meeting at the negotiating team level would take place “no later than early November”. However, Ushakov also noted that the new proposals put forward by Europe and Kyiv during the Oslo talks “contained little of substance”. The previous round of US-mediated negotiations stalled in February; following the US-Israeli military action against Iran, the talks have remained suspended ever since.

The implication is that, once negotiations resume, market expectations regarding European energy, Russian refined oil supplies and European defence spending will all be repriced. However, at present, the two sides have merely agreed to sit down and talk; no public progress has been made on core issues such as the framework for a ceasefire, territorial matters and security guarantees. Key points to watch: the specific date and level of the trilateral talks; whether a ceasefire regarding energy facilities can be implemented first; and whether US sanctions on Russian energy will be further eased.

Source:Al Jazeera

2. As attacks by the Houthi rebels intensify, the US has ordered the evacuation of some personnel from Saudi Arabia

On 21 October, the US State Department ordered the evacuation of non-essential personnel from the US Embassy in Riyadh and its consulates, and requested that some diplomatic staff and family members of US government employees leave Saudi Arabia; this order applied only to Saudi Arabia, whilst other embassies in the Gulf undertook only temporary staff adjustments. According to the Associated Press, King Khalid International Airport in Riyadh has been closed since it came under heavy attack on 10 October; only a few Saudi airlines have recently been permitted to resume operations, whilst Lufthansa and Air France have cancelled flights to Riyadh until mid-November. The Saudi Ministry of Energy stated that the wreckage of an intercepted drone fell at an oil field operated by Aramco in south-eastern Saudi Arabia, resulting in two deaths and two injuries; the Saudi-led coalition reported that Houthi militants launched five drones towards Saudi Arabia in the early hours of the 21st, all of which were intercepted.

In the early stages following the announcement of the evacuation order, the market mistakenly believed that the scope covered the entire Gulf region, causing oil prices, US Treasury yields and the US dollar to rise temporarily; however, most of these gains were reversed after the State Council issued a clarification. This demonstrates that the market remains highly sensitive to the security of energy facilities in the Gulf. Key points to watch going forward: whether the Houthi rebels will continue to target Saudi oil facilities; whether countries such as Egypt will become directly involved; and shipping risks in the vicinity of the Strait of Hormuz.

Source:Associated Press (reprinted by ClickOnDetroit)

3. Meta’s revenue rose by 26 per cent in the third quarter, but AI investment and legal costs pushed free cash flow into negative territory

Meta announced on 21 October that its third-quarter revenue stood at US$64.6 billion, up 26 per cent year-on-year and exceeding analysts’ expectations; however, operating profit fell by 37 per cent year-on-year to US$13.0 billion, primarily due to a provision of US$9.89 billion for legal costs arising from a settlement with the attorneys general of 52 states regarding adolescent mental health issues. Excluding this item, operating profit was approximately US$22.9 billion. Capital expenditure (including finance lease principal) for the third quarter totalled US$34.9 billion, whilst free cash flow stood at a negative US$2.1 billion, compared with a positive US$10.6 billion a year earlier. The company has narrowed its full-year 2026 capital expenditure guidance to between US$135 billion and US$145 billion, whilst raising its full-year total expenses guidance to between US$175 billion and US$179 billion. Revenue guidance for the fourth quarter stands at between US$73 billion and US$76 billion. Meta also announced that it would issue non-voting Class C shares, to be distributed on a one-for-one basis for each Class A and Class B share held, with effect from 19 January 2027.

Meta’s advertising business continues to grow rapidly, but investment in AI data centres has already exceeded operating cash flow. This is direct evidence that the AI investment cycle has entered a ‘cash-burning phase’. Moving forward, the market will place greater emphasis on the return cycle of capital expenditure and funding methods; revenue growth alone is no longer sufficient. Key points to watch: preliminary guidance on capital expenditure for 2027, progress in the commercialisation of the Muse series of models, and the outcome of the appeal against the US$25 billion fine in New Mexico.

Source:Meta Investor Relations、Fortune

4. Tesla’s profit margins have rebounded, but operating profit has fallen by 56 per cent

Tesla announced its third-quarter results on 21 October: revenue stood at US$28.05 billion, unchanged from the same period last year and broadly in line with expectations; non-GAAP earnings per share were US$0.48, slightly higher than the market forecast of US$0.45. The gross margin rebounded to 19.6 per cent (from 16.8 per cent in the second quarter), but operating expenses rose by 39 per cent year-on-year, with research and development expenditure increasing by 69 per cent to $2.76 billion. Consequently, operating profit fell by 56 per cent to $718 million, with an operating margin of just 2.6 per cent. Deliveries in the third quarter totalled 486,500 vehicles, exceeding expectations; energy storage deployments amounted to 13.7 GWh, falling short of the expected figure of approximately 15.9 GWh, whilst revenue from the energy business fell by 16 per cent. Capital expenditure for the third quarter stood at US$4.73 billion, bringing the total for the first nine months to US$13.0 billion; the company has not updated its full-year guidance of ‘over US$25.0 billion’.

Tesla is channelling its profits into autonomous driving, robotics and AI computing power, resulting in a significant squeeze on short-term profitability. The stabilisation of the automotive gross margin is good news, but whether the valuation can hold up will depend on when R&D investment translates into new sources of revenue. Key areas to watch going forward: the pace of robotaxi expansion; whether Q4 capital expenditure will meet the full-year guidance; and whether the energy storage business can return to growth.

Source:Electrek

5. The General Office of the Communist Party of China Central Committee and the General Office of the State Council have issued a document to promote the deep integration of scientific and technological innovation with industrial innovation

On 21 October, the General Office of the Communist Party of China Central Committee and the General Office of the State Council issued the ‘Opinions on Promoting the Deep Integration of Scientific and Technological Innovation and Industrial Innovation’, which focuses on establishing an innovation system led by enterprises and characterised by collaboration between industry, academia and research institutions. The document stipulates that, in principle, national science and technology programme projects with clear industrial application objectives should be led by enterprises, which should also take the lead in the commercialisation of results; project acceptance shall be based on ‘assessing technology through application and products through the market’, utilising milestone-based management and phased funding disbursements. Supporting measures include: encouraging state-owned enterprises to establish a research and development reserve fund system exempt from asset preservation and appreciation assessments and allowing for a margin of error; increasing the additional tax deduction ratio for research and development expenses of science and technology-based small and medium-sized enterprises; government-funded venture capital funds should “invest early, in small enterprises, for the long term, and in hard technology”; establishing proof-of-concept centres and pilot production platforms; encouraging universities and research institutes to licence their research outcomes to small, medium and micro-enterprises on a “use-first, pay-later” basis; and fully implementing a patent open licensing system.

The document does not specify quantitative targets or funding levels; it constitutes a policy framework setting out general directions. However, by shifting the focus of performance assessments from academic papers and patents towards industrialisation and market validation, it will have practical implications for ‘hard tech’ enterprises, venture capital firms and research institutes. Key points to watch: the implementation guidelines from various ministries and local authorities; the specific extent of adjustments to the additional tax deduction ratio for R&D expenditure; and the pace of expansion of the ‘Technology Board’ in the bond market.

Source:Xinhua News Agency

Market Correlation and Today's Observation

On 21 October, US shares closed slightly higher, with the S&P 500 index rising by around 0.2 per cent to close at around 7,759 points; the yield on the 10-year US Treasury note remained largely unchanged at around 5.13 per cent, whilst the winning yield at the 20-year Treasury auction was 5.469 per cent; WTI crude oil briefly touched around US$102 during the session, before closing down by approximately 0.4 per cent at around US$99.4 (figures are approximate, based on Babypips’ closing review). Judging by the day’s price action, news of Russia-Ukraine talks weighed on oil prices in early trading, whilst a misinterpretation regarding the evacuation of nationals briefly pushed up oil prices, yields and the US dollar in the afternoon, illustrating that the geopolitical premium on energy prices continues to fluctuate rapidly in response to news developments.

As for technology stocks, the earnings reports from Meta and Tesla tell the same story: whilst revenue or profit margins are improving, AI-related investments are consuming significant amounts of cash. In an environment where US Treasury yields remain above 5 per cent, companies with negative free cash flow are more likely to be asked to justify the payback period for their capital expenditure. China’s science and technology innovation policies are unlikely to directly improve profitability in the short term, but policy expectations are providing support for sectors such as hard technology, venture capital and pilot-scale testing services.

Checklist:

• Have the date, venue and agenda for the trilateral talks between the US, Russia and Ukraine been finalised?
• Have the Houthi attacks on Saudi energy facilities and airports escalated?
• Will WTI hold steady at $100, and will the yield on 10-year US Treasuries break through 5.15 per cent?
• The market’s reaction to Meta’s capital expenditure and negative free cash flow, as well as AI spending guidance in other tech companies’ earnings reports this week
• Changes in interest rate expectations ahead of the Federal Reserve’s monetary policy meeting on 28 October
• Detailed rules issued by relevant ministries and commissions, and local supporting policies relating to the ‘Opinions’

Source:Babypips Market Review

Cover image:Maria Baranova / Unsplash