Looking ahead to the day in European and global markets with Kevin Buckland.
For the past two years, investors and analysts have speculated on what might diminish the AI stocks rally. China may have now provided that answer.
In the tech-heavy U.S. Nasdaq Composite index, futures plunged 1.8% by midday Monday in Asia. This drop followed the release by Chinese startup DeepSeek of a ChatGPT tool claiming to be cheaper and potentially better in some aspects. Meanwhile, Pan-European STOXX 50 futures dipped half a percent.
Adding to the market volatility, Trump stirred currency markets by imposing sanctions on Colombia for rejecting deported migrants flown on military planes. However, Colombia swiftly complied with Trump's demands.
While Colombia's peso was inactive during Asian trading hours, Mexico's currency slipped by as much as 1.2%, Canada's loonie weakened by 0.3%, and the offshore yuan eased by 0.4%.
In contrast to Trump's tough stance on immigration, his approach towards China has been more subtle. Despite the threat of 10% tariffs effective February 1, this remains mild compared to his campaign promises of 60% tariffs, even less severe than the 25% tariffs potentially facing Canada and Mexico.
Perhaps Trump's recent positive interaction with China's Xi Jinping has softened his approach. Trump expressed a preference for avoiding tariffs when dealing with Beijing after a "good, friendly conversation" with the Chinese leader earlier in the month.
As the market assesses the impact of DeepSeek on tech shares, uncertainty remains regarding the extent of the threat to U.S. competitors. Market participants seem inclined to sell first and analyze later.
Ironically, China's move towards self-sufficiency, spurred by past chip-related sanctions and renewed tariff threats under President Trump, has now culminated in the DeepSeek challenge faced by American tech giants.
While Trump has not addressed the potential threat posed to American companies, traders are likely monitoring his Truth Social account closely.
The news from DeepSeek may shift attention to Big Tech's upcoming quarterly reports, with Apple, Microsoft, Meta Platforms (formerly Facebook), and Tesla among the companies releasing earnings this week.
Furthermore, central banks worldwide, including the Fed on Wednesday and the ECB on Thursday, will be announcing their policy decisions this week.
However, the Lunar New Year holidays in Asia will lead to subdued market activity, with mainland Chinese bourses closed from tomorrow until the following Tuesday.
On Monday, other events that could sway markets include:
- Germany's ifo surveys (Jan) - UK Nationwide house prices (Jan) - ECB President Lagarde's address at a Holocaust remembrance event in Frankfurt