Chinese AI DeepSeek Crashed Stock Markets, Company News and Geopolitics
Stock market news
• Very bad economic news from China caused a shock in Asian trading. Therefore, in the morning we see a sharp drop in US stock index futures (by 1-2%). Industrial metals, oil and agricultural products are also falling by 1-2% - everywhere where the influence of Chinese industrial demand is noticeable. US 30-year government bonds are growing by 0.6%. The dollar and yen are strengthening slightly as safe havens. Bitcoin is falling by 3-4%. The tech Nasdaq-100 is under more pressure than Value stocks due to high P/E growth stocks and the threat of AI to US stocks from the Chinese AI model DeepSeek.
The specter of the global depression of 2025 is approaching.
• For two years, investors and analysts have been pondering what might take some of the steam out of the rally in AI stocks. China may have just found the answer. Futures on the tech-heavy U.S. Nasdaq Composite index were down 1.8% by around midday Monday in Asia, as investors weighed the implications of Chinese startup DeepSeek releasing a ChatGPT competitor that it says is cheaper and may be better by some metrics. Futures on the pan-European STOXX 50 fell half a percent.
Trump also roiled currency markets again earlier in the week by slapping Colombia with fines and sanctions for refusing to accept military planes carrying deported migrants. Just hours later, Washington announced a U-turn on Bogota, which agreed to all of Trump’s terms. Colombia’s peso was flat in Asian time, but Mexico’s currency fell 1.2% and the Canadian loonie weakened 0.3%. The offshore yuan weakened 0.4%.
• But compared with Trump’s hard-line tactics on immigration, his approach to China has so far been more nuanced. While he threatened 10% tariffs from February 1, that was a far cry from the 60% tariffs he promised on the campaign trail, and even less than the 25% levies that neighbors Canada and Mexico could face on the same day. That may be because of his renewed bonhomie with Xi Jinping: Trump went so far as to say he would prefer not to resort to tariffs with Beijing after what he called a “good, friendly conversation” with the Chinese leader on the phone earlier this month.
• As for DeepSeek’s impact on tech stock prices, it remains to be seen how big a threat it could pose to its American rivals, but market participants appear to be keen to sell first and hear the verdict later. Ironically, it’s a challenge America itself has created after years of chip-related sanctions and now renewed threats of tariffs under President Donald Trump have pushed Beijing toward self-sufficiency that is now bearing fruit. Trump has made no mention of the potential threat to his own half-trillion-dollar AI initiative, but traders may be keeping a close eye on his Truth Social account.
• DeepSeek's news could also draw more attention than usual to Big Tech's quarterly earnings this week, as four of the so-called "Magnificent Seven" report their financial results: Apple, Microsoft, Facebook owner Meta Platforms and Tesla.
• Also this week, a number of central banks around the world will set their policies, including the Fed on Wednesday and the ECB the following day.
• For Asia, however, much of this is happening in the vacuum of the Lunar New Year holiday. Mainland Chinese exchanges will be closed from tomorrow until Tuesday next week.
• Starbucks (SBUX) CEO Brian Nicoll made $96 million in his first four months on the job, one of the largest paychecks in U.S. history. That includes a $5 million bonus, $61,538 in salary and $90 million in stock to compensate for the Chipotle shares Niccol left behind when he joined Starbucks.
• The Trump administration is in talks to hand over control of TikTok's global operations to Oracle and a group of U.S. investors - NPR. Under the plan under discussion, TikTok's current owner ByteDance would retain a minority stake in the U.S. company. However, control of key processes - algorithms, data collection, and app updates - would be handed over to Oracle. That would allow U.S. investors to gain a controlling stake and minimize Chinese influence.
Perplexity AI has submitted a new proposal for TikTok's parent company to buy 50%.
• MicroStrategy (MSTR) could be facing a $2.7 billion tax bill. The fact that MicroStrategy could have to pay taxes on unrealized gains could hurt its corporate strategy, making it an ineffective way to invest in Bitcoin.
• Currency volatility will destroy carry trades in emerging markets - Bloomberg.
• Diageo (DEO) says it has no plans to sell Guinness or its stake in Moet Hennessy. Bloomberg News reported Friday that the company is exploring options for selling Guinness, the star of Diageo's portfolio, and is also reviewing its investment in Moet Hennessy.
• China Boosts Index Investing in Try to Revive Market - Bloomberg China has announced new measures to promote index investment products, an attempt to support its ailing stock market amid a turbulent external economic environment.
• Coinbase (COIN) CEO says surge in new tokens makes valuation difficult. The company needs to rethink how it counts and values the slew of new tokens being created each week.
• Google (GOOG) pushes global agenda to educate workers, lawmakers on AI - Reuters Already facing unprecedented regulatory pressure, Google is seeking to shape public opinion and policy on artificial intelligence in the future.
• "We're barely making ends meet," Musk wrote to X employees in a letter. "Our user growth is stagnant, our revenue is unimpressive, and we're barely making ends meet." It's not known how much X is currently making. However, after its acquisition in October 2022, Musk said that profits had fallen by about half.
Wall Street banks are preparing to sell billions of dollars in loans to Musk's X - WSJ.
The banks hope to sell X's debt for about 90-95 cents on the dollar.
• China is ahead of the US in developing alternative energy and electric vehicles - NYT. At the same time, Trump continues to bet on environmentally unfriendly and more geopolitically unstable oil and gas.
• The dollar is experiencing a sharp weekly decline, posting its worst weekly performance (-1.7%) in 18 months.
• Canada to give Canada Post C$720 million to avoid bankruptcy - WSJ.
• Crypto king David Sachs says NFTs and memecoins are collectibles, not securities
Sachs compared Trump's recently issued memecoin to a "baseball card or stamp."
• Musk is exploring the possibility of using blockchain to improve the efficiency of the US government, - Bloomberg. Projects are being discussed to use blockchain technologies to track government spending, protect data, manage property and payments. DOGE representatives have already held talks with public blockchain developers.
• This week will bring a flurry of news for investors. More than 20% of the 101 companies in the S&P 500 are expected to report, including tech heavyweights Meta (META), Microsoft (MSFT), Apple (AAPL) and Tesla (TSLA), with Wednesday being the busiest day of the week. Starbucks (SBUX), Exxon (XOM) and Chevron (CVX) are also set to report.
• The Fed will also announce its latest monetary policy decision on Wednesday afternoon. The central bank is expected to leave interest rates unchanged, with investors focusing on what Fed Chair Powell says.
Key events that could impact markets on Monday:
- German ifo surveys (January)
- UK house prices (January)
- ECB President Lagarde speaks at Holocaust memorial event in Frankfurt
Fundamental news
• China manufacturing activity unexpectedly contracted in January - PMI
The manufacturing PMI fell to 49.1 (expected a stable 50.1),.
A reading below 50 indicates contraction in the sector, with the manufacturing PMI now falling again after three months of growth.
The non-manufacturing PMI fell to 50.2 from 52.2.
China's composite PMI fell to 50.1 from 52.2 (expected 52.1).
Local businesses have received only a short-term boost from Beijing's recent stimulus measures.
• China's economy is sinking deeper into depression. Beijing's attempts to survive by importing to the US and EU will be thwarted by the cooling of developed countries' economies (falling demand) and possibly trade barriers.
• Trump imposed 25% tariffs and other measures against Colombia. After the country refused to allow two flights with deported migrants to land. Trump said the tariffs would be raised to 50% within one week. The Colombian president offered to send a presidential plane to repatriate those deported from the US after Trump threatened sanctions, CNN reports. Earlier, it was reported that Mexico refused to accept US planes with illegal migrants. Then Trump remained silent. Apparently, Colombia has been chosen for an exemplary flogging.
• US Vice President J.D. Vance: “We have gotten into too many wars without a plan to win.”
• The COVID-19 coronavirus pandemic was the result of a leak from a laboratory in the Chinese city of Wuhan, - The New York Times, citing the new head of the CIA, John Ratcliffe. China denies this. The statements of the new head of the US CIA about the origin of the coronavirus are political manipulation aimed at denigrating China, - press secretary of the Chinese Embassy in Washington Liu Penyu. Given the huge global losses, will this information become a reason for the US to "punish" China?
• The Trump administration has ordered the Pentagon to lift Biden's ban on the delivery of 2,000-pound (908 kg) bombs to Israel, Axios reported, citing three Israeli officials.
• Germany wants to declare a state of emergency due to the influx of migrants. Chancellor candidate Friedrich Merz has proposed denying entry to all foreigners and arresting those who are forced to leave the country.
• Slovak Prime Minister Robert Fico does not plan to resign amid protests by thousands in the country. At the same time, he does not rule out holding early elections. The coalition government of Slovak Prime Minister Fico has lost its majority in parliament - Visegrad 24.
• Another cable between Latvia and Sweden, the Latvian broadcaster LSM, has been damaged in the Baltic Sea. This is the cable of the Latvian State Radio and Television Centre.
• If Trump tries to buy Greenland, he will have to turn to London first, in accordance with agreements made more than a century ago, former Danish Minister for Arctic Affairs Tom Høyem told The Sunday Times. Høyem recalled that in 1917, when the US first tried to buy Greenland, President Woodrow Wilson initially rejected the idea.
• Young people on TikTok increasingly trust Russia and China - DW. The publication cites the results of a survey by the Allensbach Institute, conducted at the request of the Friedrich Naumann Foundation. According to the study, 30% of Germans do not agree that Russia is deliberately spreading disinformation. Among respondents under 29, this figure is 42%. Among TikTok users, this figure is 50%.
• Traditions are being revived in the US - "bounty hunters" are being released against illegal immigrants in the state of Mississippi. Each will be paid $1,000 for the deportation of one illegal immigrant. In this way, the state is trying to lift the tax burden from ordinary Americans, since hiring bounty hunters will be cheaper and more effective.
• Slovakian Prime Minister Robert Fico has accused Ukraine of involvement in a cyberattack on his country's national health insurance company. The Ukrainian Foreign Ministry has categorically denied Fico's statements.
• The United States has officially renamed the Gulf of Mexico the Gulf of America. The Department of the Interior noted its significant role in the country's history and economy.
• The U.S. Department of Homeland Security has ordered a de facto suspension of a number of programs that allowed immigrants to temporarily settle in the United States.
• US Secretary of State Rubio: “Every dollar we spend, every program we fund, must be justified by the answer to three simple questions: Does it make America safer? Does it make America stronger? Will it make America more prosperous?”
• The US Senate has confirmed Pete Hegseth as the new head of the Pentagon. In his first address to the military, Hegseth outlined key objectives: restoring the “military spirit,” modernizing the army, and strengthening threat deterrence. Hegseth emphasized that the Pentagon will focus on protecting the US and preventing aggression, including from China.
• Trump to crack down on emergency response agency. He said FEMA is expensive and ineffective. Trump said it would be better to pay states directly to handle disaster relief themselves.
• Mexico has refused to accept a deportation flight from the United States, - NBC News.
• Moody's has upgraded Argentina's credit rating from Ca to Caa3. The country's outlook has also been changed from stable to positive.
• On February 8, the Baltic countries will disconnect from the BRELL energy system, which is united with Russia and Belarus. Now Latvia, Lithuania and Estonia will be connected to the energy network of the European Union. In this way, the Baltic countries want to deprive Russia of the opportunity to use electricity as a weapon against them.
• Elon Musk says the upcoming German elections "could decide the fate of Europe, and perhaps the world." And calls on the German people to vote for the AfD party.
• White House Chief of Staff Susie Wiles prevented Elon Musk from opening an office for his DOGE in the White House. She also ordered DOGE employees to report to her, not directly to Trump.
• US breaks arms export record in 2024 - Reuters. The United States sold a record $318.7 billion in weapons in 2024, up 29% from 2023. The main demand arose from growing instability and the needs of countries that support Ukraine.
Direct sales of military equipment increased by 27.5%, and sales through the US government by 45.7%. Aircraft, tanks, drones and air defense systems were especially popular.