Markets were rattled on Monday following news that the latest model from China’s DeepSeek was able to deliver similar performance to leading models but at a fraction of the cost. This raised questions over the vast volume of AI infrastructure spend as well as China eating into the US’s lead. On Monday Nvidia plunged 17%, wiping nearly $600bn off its value, weighing on markets.
Tech stocks later found some support as earnings reports from the likes of Apple, Tesla and Meta Platforms surprised on the upside. The week ended on a cautious note as investors braced for the introduction of 25% tariffs on imports from Mexico and Canada coming into effect from 01 February. For the week the S&P 500 fell 1.0%, the tech-heavy Nasdaq Composite lost 1.6%, although the Dow Jones Industrial Average managed to eke out a slight gain of 0.3%. All three indices managed to log gains for the month of January. US Treasury yields declined for the week, with the 10-year yield ending at 4.55%.
European markets were not immune to the DeepSeek sell-off however they managed to pick themselves up, gaining on upbeat company earnings results as well as central bank meetings. The pan-European STOXX 600 rose 1.8%, recording another all-time high, extending its weekly winning streak to six, its best run since March 2024. The European Central Bank cut interest rates by a quarter percentage point, although President Christine Lagarde cautioned that the eurozone economy would remain weak. Indeed, a first estimate of fourth quarter eurozone GDP showed no growth relative to the prior quarter. Sweden’s Riksbank also lowered its interest rate by a quarter percentage point.
Asia Pacific markets saw thin trading, with many closed for much of the week due to the Lunar New Year holiday. On its only day of trading on Monday, the Shanghai Composite was down marginally, with weak manufacturing activity data. Meanwhile the Hong Kong Hang Seng gained across the time it was open. Japanese stocks were under pressure by a sell-off in semiconductors and tech names, although performance for the week was mixed. The Nikkei 225 experienced a 0.9% drop however the broader Topix was up 1.4%. The yen strengthened against the US dollar, after Bank of Japan deputy governor Ryozo Himino said that the central bank would continue to raise rates if the economy and prices move in line with forecasts. The hawkish outlook was reinforced by the Tokyo core inflation reading picking up.
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