Say, “My Lord has only forbidden immoralities – what is apparent of them and what is concealed – and sin, and oppression without right, and that you associate with Allah that for which He has not sent down authority, and that you say about Allah that which you do not know.” (Qur’an 7:33)
ALLAH LAUGHS AT THE DESPAIR OF HIS SLAVES?
Waki’ bin Hudus narrated that his paternal uncle Abu Razin said:
“The Messenger of Allah said: ‘Allah laughs at the despair of His slaves although He soon changes it.’ I said: ‘O Messenger of Allah, does the Lord laugh?’ He said: ‘Yes.’ I said: ‘We shall never be deprived of good by a Lord Who laughs.'”
Source: (https://sunnah.com/ibnmajah:181)

“The Messenger of Allah said: Allah chuckles at the despair of His slaves although He soon changes it.’
I said: ‘O Messenger of Allah, does the Lord chuckle?’ ‘He said: ‘Yes.’ I said: ‘We shall never be deprived of good by a Lord Who chuckles.”
Now if we take this hadith alone it is challenging to suggest that chuckling/laughing can be interpreted as Mercy. Because, even the companion ask, ‘Does Allah chuckle?’ and it would be difficult to imagine the companion asking, ‘Does the Lord show Mercy’. I mean we recite the Qur’an as bismillah ir rahman ir raheem. Most Merciful and Most Compassionate.
However, this is a lone narrator report. We in Ahl Haqq Wal Istiqamah (The Ibadi School) we do not make lone narrator reports as a basis for our faith. What we do is look at other ahadith where these idioms are used to show if there is other meanings.
If we are to take this lone narrator report at the apparent meaning as the Salafi -Athari suggest than it means that Allah (swt) is laughing, chuckling etc at the despair and pain that humanity undergoes.
It takes a depraved human being and a twisted imagination to suggest that Allah (swt) would have a hearty chuckle at the despair and misery of humanity.
Children being sexually abused by their parents.
People starting to death in this world.
You going to say that Allah (swt) is laughing/chuckling at this?!
Furthermore does this laughing and chuckling produce a sound such that we can say that it is uncreated? Such that one can imagine an eternal chuckling and laughing at the despair, torture and pain of a creation that has yet to be created?
We wonder why people are Atheist?
Either the people who invent such falsehoods have a very low estimation of the Divine, or the Creator they worship is more horribly morbid than the darkest corner of human imagination could fathom.
However, because this hadith is graded as ‘Hasan’ those who take the lone narrator reports will insist,
We believe that Allah chuckles/laughs …with the disclaimer (in a way that befits his majesty!
“It has been narrated on the authority of Abu Huraira that the Messenger of Allah (may peace be upon him) said: Allah chuckles at the two men both of whom will enter Paradise (though) one of them kills the other. They said: Messenger of Allah, how is it? He said: One of them fights in the way of Allah, the Almighty, and Exalted. and dies a martyr. Then Allah turns in mercy to the murderer who embraces Islam, fights in the way of Allah, the Almighty, and Exalted, and dies a martyr.” (‘Sahih’ Muslim Kitab Al-Imara hadith number 4658)
Source: (https://sunnah.com/muslim:1890a)

If we understand the mention about Allah (swt) chuckling as his act of Mercy than this is not a problem. It is an idiom or an expression.
However, if as some in the Muslim community do (ever ready to kick every one else out of Islam), insist that we have to take this at the apparent meaning it is very dark.
These kinds of hadiths are reminiscent of the stuff attributed to Allah (swt) in the Bible.
“And the LORD repented of the evil which he thought to do unto his people.” (Exodus 32:14)
“The LORD regretted that he had made human beings on the earth, and his heart was deeply troubled.” (Genesis 6:6)
So we would take the two hadith and combine them and our understanding would be the laughing/chuckling as an idiom or expression of Allah’s mercy that is soon to follow any act of despair, as long as the people put their tawakkul (trust) in Allah (swt).
“Say, “O My servants who have transgressed against themselves, do not despair of the mercy of Allah. Indeed, Allah forgives all sins. Indeed, it is He who is the Forgiving, the Merciful.” (Qur’an 39:53)
May Allah (swt) Forgive the Ummah.
May Allah (swt) Guide the Ummah.