Global stock markets are predominantly down as Wall Street has retreated from its recent peaks attained on Monday. U.S. stock futures plummeted as market participants considered a considerable challenge posed by the Chinese company, DeepSeek, to American superiority in the realm of artificial intelligence (AI). Leading tech firms that thrived due to AI developments are now facing significant losses.
The notable drop in U.S. yields this morning (see Bloomberg chart below) is sparking extensive discussions. Possible interpretations include:
Spillover from the “risk-off” mood caused by the developments with DeepSeek in China,
Decreasing inflation expectations, as perceptions shift that the… pic.twitter.com/T6takocXve— Mohamed A. El-Erian (@elerianm) January 27, 2025
Semiconductor giants Nvidia and Broadcom each saw their stock values plummet by double-digit percentages after DeepSeek showcased its competitive AI chatbot. Oracle’s shares fell by 8%, with Microsoft down by 3.8% and Amazon decreasing by 3.3%. Alphabet, Google’s parent company, and Meta, Facebook’s parent, both lost approximately 3.5%.
With a 0.7% increase today, gold prices are approaching the all-time closing record set at the end of October.
This surge should not be viewed as a typical “flight to safety” given the current state of U.S. stocks (S&P reached a record high yesterday) and government bonds (U.S. 10-year yield at 4.61%).
There’s a more… pic.twitter.com/nLKz0MGymP— Mohamed A. El-Erian (@elerianm) January 24, 2025
Futures for the S&P 500 retreated by 2.1% ahead of the opening bell, while tech-heavy Nasdaq futures fell by 3.8%. Meanwhile, futures for the Dow Jones Industrial Average dropped by 0.7%.
The U.S. Composite @SPGlobalPMI decreased noticeably in January, yet it still aligns with relatively robust GDP growth pic.twitter.com/zXI5ci2cIJ
— Liz Ann Sonders (@LizAnnSonders) January 27, 2025
Analyst Dan Ives from Wedbush Securities emphasized that the U.S. tech industry is still significantly ahead of China in terms of AI infrastructure.
“Creating a competitive large language model for consumer applications is one aspect.
Wall Street reacts to DeepSeek’s competition
Establishing a wider AI infrastructure presents a different challenge altogether, and nothing observed from DeepSeek leads us to believe otherwise,” Ives remarked.
The U.S. dollar fell against the Japanese yen, while the euro slightly appreciated against the dollar. U.S. crude oil dropped 61 cents to $74.05 per barrel, and Brent crude decreased by 66 cents to $76.89 per barrel. The Federal Reserve’s latest policy meeting is scheduled for later this week, with traders not anticipating that the latest weak data will compel the Fed to lower its principal interest rate.
The central bank is expected to maintain rates as they are.
European market updates
Germany’s DAX went down 0.9% during midday trading in Europe, while the CAC 40 index in Paris lost 0.6%. The FTSE 100 in Britain retreated by 0.2%. In Asia, Hong Kong’s Hang Seng Index rose by 0.7%, supported by gains from e-commerce leader Alibaba and search engine Baidu.
However, the Shanghai Composite Index saw a slight decline following a report that indicated a decrease in export orders for Chinese manufacturers. Tokyo’s Nikkei 225 also dropped, extending losses after the Bank of Japan raised its benchmark interest rate to 0.25%, the highest since 2008. Shares of computer chip manufacturers in Tokyo faced substantial declines, with Tokyo Electron down 4.9% and test equipment manufacturer Advantest plummeting 8.6%.
