US equity futures and global markets are tumbling as rising weekend fears that China's DeepSeek's R1 AI platform could lead to a collapse in capex spending plans, have culminated in a wholesale rout of tech names around the world. And since tech is by and far the most important sector to global equities, almost nothing has been spared (with the possible exception of the energy sector which for months was used as a pair trade to fund tech longs). As a result, what as of 6pm on Sunday night (when futs opened) was a mere DeepSelling trickle...
... has since transformed into a full-blown DeepSink rout, sending S&P futures down as much as 3% and Nasdaq futures down 5%, before a modest bounce. As of 8:00am, S&P futs were down 2.3%, and Nasdaq futs tumbled 3.9%, on futures volume that was about four times the 30-day average, as the the DeepSeek story forces investors to "question the market position of all the MegaCap Tech names and the entire AI supply chain." Mag7 names are all plunging premarket by 4-6% while some former leaders are getting absolutely nuked such as NVDA -11%, AVGO -10.8%, VRT -18%. The global risk off panic means bond yields are collapsing while the USD is moving lower and commodities are mixed. Mag7 earnings take on heightened importance this week, but the SPX may be down 4-5% ahead of TSLA’s earnings on Weds. As JPM's market intel team puts it, "Is AI dead or is one of the greatest buy-the-dip trades in recent memory?" Separately, President Donald Trump’s threats to impose tariffs on Colombia, which sent the dollar higher, also contributed to the contracts’ decline. Trump pulled the threat after reaching a deal with the Colombian government on the return of deported migrants.
In premarket trading, Nvidia plunged 12% in US premarket trading, setting it up for the biggest drop on record in terms of market capitalization after Cramer said last week it could be "breaking out."
All AI-linked stocks slumped amid concern that AI models from Chinese firm DeepSeek could disrupt US technological leadership. C3.ai (AI) -6%, Palantir (PLTR) -6%, Super Micro Computer (SMCI) -9%; Chip-related stocks decline: Broadcom (AVGO) -12%, Lam Research (LRCX) -5%, Marvell Technology (MRVL) -14%; AI infrastructure-related stocks also traded lower: Amphenol (APH) -11%, ARM Holdings (ARM) -10%, Oracle (ORCL) -7%. The tech slump triggered by DeepSeek sent ripples into other industries. Needless to say, all Mag7 names were sharply lower: Alphabet (GOOGL) -3%, Amazon (AMZN) -4%, Apple (AAPL) -0.7%, Microsoft (MSFT) -6%, Meta Platforms (META) -3%, Nvidia (NVDA) -12% and Tesla (TSLA) -4%. Power stocks, which are typically less volatile, slid on fears of weaker electricity demand from AI data centres. Here are some other premarket movers:
The buzz over DeepSeek emerged over the weekend, with tech analysts saying the company’s AI model provides comparable performance to the world’s best chatbots at a fraction of the price. For some thoughts see here:
For investors, it put a question mark over an AI-driven rally that’s added $15 trillion to the Nasdaq 100 since 2022 and been at the heart of US equity gains.
“It does put a lot of scrutiny at the level of valuations,” said Benedicte Lowe, equity derivatives strategist at BNP Paribas Markets 360. “We are quite positive on US tech stock sector. But it puts pressure on the outlook and is a turning point for the companies at this stage in the cycle.”
President Trump’s spat over the weekend with Colombia also added to the bearish mood in the market. Trump had announced sweeping tariffs on the country and then abruptly changed course after reaching a deal on the return of deported migrants. “The incident again shows that tariffs are a negotiating tool, but markets need to price in some premium for the volatility that such announcements will bring,” wrote Mohit Kumar, a strategist at Jefferies. The Mexican peso underperforms with a 1% fall.
Tech will remain in focus for traders, with four of the Magnificent Seven stocks — Apple, Microsoft, Meta and Tesla — scheduled to release results this week. “With DeepSeek likely to stay in investors’ minds, muted gains for beats and severe punishment for misses may be the outcome of the earnings season,” said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP.
In Europe, ASML Holding NV sank 10%, the biggest selloff since October, weighing on the Europe’s Stoxx 600, which was down 0.6%. Here are some of the biggest movers on Monday:
Earlier in the session, Asian stocks were steady Monday as Chinese shares’ gains on AI-fueled optimism offset selloffs in India triggered by concerns over an economic slowdown. The MSCI Asia Pacific Index gave up early gains to trade flat. Shares of Alibaba, Tencent and Toyota were among top gainers. Indian stocks, including Infosys and HDFC Bank, fell and weighed on the index. Chinese stocks in Hong Kong led gains at the start of a shortened trading week, with tech firms linked to DeepSeek rallying as investors assessed the Chinese AI app’s popularity. Chinese AI-related stocks reacted positively, with mainland-listed Merit Interactive Co. among those surging by their daily limits. Merit has some of the clearest links to DeepSeek after stating in an earlier filing that it had incorporated the homegrown AI firm’s model into marketing. In Hong Kong, the Hang Seng Tech Index climbed as much as 2% ahead of Lunar New Year holidays this week. Japan’s Topix index climbed, as market participants breathed a sigh of relief that the Bank of Japan’s interest-rate hike last week passed without turmoil. Markets in Taiwan, South Korea, and Australia were closed for a holiday Monday.
“We had a week of relative restraint on Trump’s part with regards to tariffs, with the dollar index easing to lowest level in more than four weeks,” said Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities. “But that changed this morning after Trump slapped tariffs on Colombia, driving US stock futures lower and dollar higher in early Asian trade. DeepSeek, an open-source model that seemed to be able to run on lower-spec GPU, may pose a challenge to Nvidia’s dominance and other popular AI providers such as ChatGPT,” he said.
In FX, the Japanese yen climbs to the top of the G-10 FX leader board, rising 1.3% against the greenback as its safe-haven appeal comes to the fore. The Swiss franc also climbs 0.6%. FX was also hit after Trump announced sweeping tariffs on Colombia before abruptly pulling the threat when Colombia's president agreed to comply with Trump's demands. The Mexican peso underperforms with a 1% fall.
In rates, treasuries lead a rally in global government bonds, with US 10-year yields falling as much as 12bp across maturities and all but 30-year having reached lowest levels this year. Haven demand is at play with tech shares leading US stock index futures lower on perceived competitive threat from China’s AI startup DeepSeek. Yields remain at least 9bp lower led by intermediate sectors, steepening 5s30s spread by ~2.5bp toward Friday’s highs; 10-year, down 11bp near 4.51%, outperforms bunds and gilts by ~5bps. US session includes 2- and 5-year note auctions, an accelerated schedule that concludes with 7-year notes Tuesday, before Wednesday’s FOMC policy announcement.
In commodities, oil prices advance, with WTI rising 0.4% to $75 a barrel. Spot gold falls $6 to $2,765/oz. Bitcoin falls 5% to below $100,000.
It's a busy week, which sees the Fed, ECB, PCE and the bulk of tech earnings; on Monday we start with the December Chicago Fed national activity index (8:30am) and new home sales (10am) and January Dallas Fed manufacturing activity (10:30am)
Market Snapshot
Top Overnight news
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed in a holiday-thinned start to the week as participants digested disappointing Chinese PMI data, Trump's tariff announcement on Colombia, and with Chinese start-up DeepSeek threatening US dominance in the AI sector with a low-cost model on par with OpenAI’s o1. Markets in Australia, South Korea and Taiwan were closed for holidays. Nikkei 225 reversed opening gains and dipped back beneath 40,000 amid headwinds from Trump tariffs and Chinese PMIs. Hang Seng and Shanghai Comp were kept afloat on the last trading day for the mainland before the Chinese New Year holiday despite the disappointing PMI data which showed headline Chinese Manufacturing PMI back in contraction territory. Nonetheless, there was notable strength seen in some AI-related stocks after Chinese tech start-up DeepSeek's low-cost AI model was reported to be on par with OpenAI's o1.
Top Asian News
European bourses are almost entirely in the red while US futures are lower across the board amid the fallout from disappointing Chinese PMI data overnight, Trump's tariff announcement on Colombia, and with Chinese start-up DeepSeek threatening US dominance in the AI sector with a low-cost model on par with OpenAI’s o1. Euro Stoxx 50 -1.5%, with heavyweight tech and energy names in the region slumping on the DeepSeek update; ASML -10.6%, ASM -14.2% and Siemens Energy -21%. Sectors somewhat mixed with a clear defensive bias given broader market risk aversion, with Tech lagging on the above alongside Energy which is also hit on Trump and Chinese PMIs, factors which weigh on Basic Resources as well.
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Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
One week down, 207 to go of Trump 2.0 and what have we learnt so far? It’s hard to say we’ve learnt too much, even with the best part of a hundred executive orders already signed. The market has been relieved that tariffs haven’t been issued on “day one” as previously promised but its only five days until the February 1st date Mr Trump suggested could be the point he puts tariffs on Mexico, Canada and China. So that will be the gorilla in the room this week. In addition, he’s ordered departmental reviews of existing trade practises with an April 1st deadline. So no news on tariffs isn’t necessarily good news. Yesterday Columbia was the latest to feel the wrath of Mr Trump as he ordered an emergency 25% tariff on the country, to be doubled in a week, over the country's refusal to allow two planes of undocumented migrants returning from the US to land. However, in the early hours of this morning, the US removed the threat after the Colombian leader agreed to grant entry to US military flights deporting migrants. This 12 hour incident feels like a template for how the US will now deal with its foreign policy issues.
Outside of Mr Trump watching, there’s a lot going on this week with rate meetings from the Fed and Bank of Canada (Wednesday), and the ECB (Thursday); inflation data in Europe (Thursday/Friday), US (core PCE Friday), Japan (Tokyo CPI Thursday), and Australia (Wednesday); and Q4 GDP in the US, Germany, France, Italy and Euro Zone (Thursday). If that wasn’t enough, earnings season starts to take off in both the US and Europe with 102 S&P 500 and 53 Stoxx 600 companies reporting with four of the Magnificent 7 (Microsoft, Meta and Tesla on Wednesday, and Apple on Thursday) being the obvious highlight. In the AI world there's been a lot of chatter in the last few days around Chinese firm DeepSeek's announcement that it's produced an open-source AI model that rivals some of the US tech giant's equivalents for a fraction of the costs and using less sophisticated chips. As this story builds, Nasdaq futures are down -2.23% this morning, driving the S&P 500 down -1.17%. These are big moves for this time of day. It will be interesting if this story gets momentum and whether the Mag-7 loses some of their luster.
In theory the main event this week would normally be the Fed but in our economists’s preview here they expect a relatively quiet meeting with no rate move and limited guidance about future policy decisions. They believe that while Chair Powell may not rule out a March cut as he did last January, the broad signals from the meeting should confirm that such a cut is not likely with Powell possibly emphasising the underlying strength of the economy and signs of stabilisation in the labour market that would require patience in removing further restriction. When asked about Mr Trump’s policies and their impact on inflation expect Powell to play a straight bat and say that the committee wont prejudge policies in advance.
After the Fed we get Q4 US GDP on Thursday (DB expect 2.6%), and then the core PCE deflator on Friday. Our economists expect +0.20% vs. +0.1% in December which should just about help the YoY rate round down to 2.8%. The 3-month annualized growth rate should tick down slightly to 2.3% from 2.5% and the 6-month rate should be unchanged at 2.4%. The employment cost index (ECI) is also out on Friday and this will be a key release for the Fed as more subdued labour market pressure has given them comfort in recent months.
Over in Europe, our economists expect the central bank to deliver another 25 bps cut on Thursday taking the policy rate to 2.75% and see the description of the policy stance unchanged relative to December. See more in their preview here. The ECB will also release its bank lending survey tomorrow and the consumer expectations survey on Friday. Optimism is creeping back into Europe this year and the December 2025 ECB contract has gone up from 1.56% in early December to 2.07% on Friday implying less than four cuts from here. Much of course will depend on the extent that Europe is in the crossfire of Mr Trump and so far the market is relieved that nothing specific was announced last week but note that Trump on at least two occasions called out the European Union and said at his virtual Davos address that the EU treats the US "very unfairly" and "very badly". So it would be wise to brace yourself for more news on this front.
Elsewhere in Europe, this week the focus will also be on flash January CPIs starting with Spain on Thursday. Prints for Germany and France are due Friday, with Eurozone-wide numbers out a week today. Our European economists expect headline and core Eurozone HICP to decline by 0.1pp to 2.3% YoY and 2.6% YoY. Their forecasts for Spain, Germany and France are 2.38%, 2.79% and 1.85%, respectively. See more in their latest inflation chartbook here and don't forget the GDP prints in Germany, France and the Eurozone on Thursday, as well as Sweden on Wednesday. Other highlights include the Ifo survey in Germany today as well as Sweden's Riksbank rates decision on Wednesday.
In Japan our economists preview the week-ahead including views on Thursday's Tokyo inflation, industrial production and labour market data and key forecasts updates here. The day-by-day week ahead calendar is at the end as usual with a fuller list of key events, including the main earnings to be realised.
Asian equity markets are mixed in thin trading as the Columbia and DeepSeek stories reverberate. The Hang Seng (+0.87%) is leading the way but mainland Chinese stocks are flatish after weaker than expected manufacturing PMI data (more below). Chinese markets will be closed for the week-long Lunar New Year holiday from tomorrow. Elsewhere, Australian and South Korean markets are closed for holidays. 10yr UST yields (-3.25bps) have edged lower, trading at 4.59% as we go to print.
Coming back to China, the official factory activity unexpectedly shrank in January, coming in at 49.1 (v/s +50.1 expected), down from +50.1 thus reversing the expansionary momentum over the past three months. China’s non-manufacturing PMI fell to 50.2 in January, compared to 52.2 last month. Separately, China’s industrial profits jumped +11.0% in December from a year earlier, growing for the first time since July. Meanwhile, full-year industrial profits in 2024 fell -3.3% from the previous year, extending declines to a third consecutive year.
Looking back at last week now, risk assets put in a strong performance as investors were relieved by the lack of immediate tariffs after Donald Trump returned to the presidency. That helped the S&P 500 advance +1.74% over the week as a whole (-0.29% Friday), which included its first record high of 2025 on Thursday. Those gains were evident across the world, with Europe’s STOXX 600 up +1.23% (-0.05% Friday), whilst Japan’s Nikkei was up +3.85% (-0.07% Friday) even as they delivered a hike on Friday, one that was fully priced by the time it arrived.
These advances were supported by growing investor confidence that the Fed would still cut rates this year, particularly given the absence of tariffs so far. On top of that, oil prices fell back after four consecutive weekly gains, with Brent crude down -2.83% last week to $78.50/bbl. So collectively, that meant the amount of cuts priced in by the December meeting ticked up by +4.3bps to 42bps, meaning that futures still see at least 2 cuts in 2025 as more-likely-than-not. In turn, that helped Treasury yields inch lower, with the 2yr yield down -1.7bps (-2.3bps Friday) to 4.27% and the 10yr yield down -0.6bps (-2.3bps Friday) to 4.62%.
In Europe however, sovereign bonds struggled last week as the risk-on tone gathered pace across markets. That was particularly the case in Europe, where the 10yr bund yield was up +3.6bps (+2.0bps Friday) to 2.57%, which followed an upside surprise in the January flash PMIs on Friday. In Germany itself, the composite PMI was up to 50.1 (vs. 48.3 expected), which is its first month in expansionary territory since June. And for the Euro Area as a whole, the composite PMI was up to 50.2 (vs. 49.7 expected), which is its highest level since August. So that led to a few more questions about how rapidly the ECB would cut rates, with the amount priced in by the December meeting down -12.5bps over the week to 87bps.
Finally, spreads continued to tighten across the board last week. In fact, Euro IG credit spreads (-3bps) fell to their tightest level in 3 years, at 95bps. And among sovereign bonds, the Spanish-German 10yr spread also ended the week at its tightest in three and a half years, at just 62bps. US credit spreads also continued to tighten, with US IG down -2bps last week to 78bps, and US HY tightening -6bps to 256bps.