Tech Shift

With interest in AI innovation growing, tech-heavy Nasdaq futures were under significant pressure earlier this week. The spotlight fell on Chinese company DeepSeek, which has launched an affordable and powerful AI model.

Low-Cost AI Makes a Difference

DeepSeek, a Chinese AI startup, has unveiled a groundbreaking new development: an open and free AI model that it claims is as good as its more expensive U.S. counterparts. The revelation has sparked a sell-off in U.S. AI stocks, especially giants like Nvidia.

Potential Implications for US Giants

DeepSeek has already proven its competitiveness, surpassing apps like ChatGPT in popularity on the App Store. This has raised concerns about the justification for billions of dollars invested in domestic AI technologies, which could potentially destabilize the companies' position in the market.

Should we be worried?

Richard Hunter, a market expert at Interactive Investor, believes that it is premature to call DeepSeek a serious threat to US AI developers. However, the startup's impact on the market is already noticeable, as demonstrated by the declines in the share prices of leading tech companies such as Nvidia, AMD and Micron Technology, which have suffered heavy losses in pre-market trading.

Impact of a new development

The implications for US tech giants could be significant if the trend towards affordable and effective AI models strengthens. This could force a rethink of investment and development strategies in the AI field, as well as intensify competition at the global level.

Major Players on the Verge of Financial Analysis

Investors' attention this week is focused on upcoming earnings reports from tech leaders Microsoft, Apple, and Tesla, all of which posted notable declines against the overall trend. Microsoft and Meta Platforms (banned in Russia) each lost 3.3%, while Apple lost 1.4% of its value.

Dropping in the Trend

Alphabet, the corporate parent of Google, was also not left out, losing 3.2% of its capitalization. Server makers such as Dell Technologies and Super Micro Computer started the week with an even more noticeable decline of about 8%.

Index Fluctuations

Markets were under pressure from the decline in the major indices. Thus, the Dow E-mini lost 472 points, which is a decrease of 1.06%. The S&P 500 E-mini and Nasdaq 100 E-mini also showed significant declines of 1.96% and 3.04%, respectively.

International Tensions Ease

Adding to the turbulence, the recent trade dispute between the US and Colombia has been resolved after the White House confirmed that Colombia had agreed to accept military planes carrying deported migrants, stepping back from the brink of a trade war.

Key Economic Events on the Horizon

This week promises to be a busy one for the economy. The Federal Reserve is expected to leave its interest rate decision unchanged, and personal consumption spending data for December, a critical gauge of inflation trends, is due out on Friday.

Trade Tensions Spook Investors

President Donald Trump's latest remarks about the possibility of new tariffs have rattled markets, raising inflation expectations and potentially slowing the pace of the Federal Reserve's rate cuts. The president has raised the issue several times in the past week, but there are few specifics on his plans.

Market Jitters Despite Gains

Amid these uncertainties, the three major U.S. stock indexes posted gains last week, although they retreated from their all-time highs on Friday.

Focus on Big Company Earnings

This week promises to be a big one for the market, with quarterly earnings reports coming from major energy and aviation players including Exxon Mobil, United Parcel Service and Boeing.

New Challenges to Start the Week

As the week in Asia begins, global markets are reacting sharply to news surrounding the Trump administration's economic policies, as investors try to gauge whether the allure of the U.S. market, known for its "exceptionalism," will continue.

Weak Week for the Dollar

The dollar had one of its worst weeks since November 2023, losing 1.8%. That's down from hitting a two-year high earlier this month, with hedge funds showing their largest long position in nine years.

Dollar and Stock Correlation

The dollar and US stocks continue to track strong global capital inflows, particularly into the US AI and tech sectors. However, if the dollar's current decline is a sign of waning US economic dominance, should we expect Wall Street to enter a period of stagnation as well?

Market Performance Ahead of Key Events

US stock markets have been making notable gains in the past week, with the S&P 500 hitting a new record and the Nasdaq close to its all-time high. These gains come at a time when significant events such as the Federal Reserve meeting and earnings reports from major tech companies are on the horizon, which could add to market volatility.

A Focus on Asian Economic Indicators

The focus in Asia early in the week will be on official Chinese manufacturing and services PMI reports for January. Forecasts point to a stable manufacturing PMI reading of 50.1, signaling a fourth straight month of growth, albeit little change from the previous month.

Worrying Signs from China's Economy

Recent data showed that profits at China's state-owned firms increased by just 0.4% last year, one of the weakest in decades. Further industrial profit data, which could be released as early as this week, is expected to confirm the trend.

Japan on the Road to New Economic Solutions

Investors are also closely monitoring the impact of the Bank of Japan's recent interest rate hike, initially seen as a tough move. Despite this, Japanese money markets are pricing in only modest further tightening this year. Looking ahead, the BOJ is expected to maintain a relatively neutral tone, which is likely to push Japanese stocks higher to start the week.