US equities started last week firmly on the backfoot after the emergence of Chinese artificial intelligence (AI) model DeepSeek sparked concerns over US dominance in the technology. The latest DeepSeek model was allegedly developed at a fraction of the cost of other leading AI applications whilst also requiring significantly less energy to run. That sparked fear across the US AI value chain with critical player NVIDIA seeing its shares sink by circa -17.0% on Monday alone[1]. Whilst a recovery was staged across the rest of the week, it was not enough to prevent declines in both the S&P500 and the NASDAQ, the former by -1.0% and the latter by -1.6% (in dollars). As for tariffs, well a week is a long time in politics. In our previous update we spoke about how tariffs, or rather a lack of during President Trump’s first week, had provided a modest springboard for equity markets. That all changed during the second week however with neighbours Canada and Mexico firmly in the firing line. Both countries now face import duties of 25.0% on a slew of key goods whilst long term US rival China, has seen an additional 10.0% tax added. The new administration has certainly got to work during its first two weeks in office.

Equity market performance elsewhere was mixed with European indices seeing positive momentum whilst key Asian indices laboured. The MSCI Europe ex UK index added +1.5% (in euros) with the positive sentiment in part reflective of the European Central Bank’s (ECB) decision to cut interest rates at last week’s policy meeting[2]. Across the Channel, the FTSE 100 and FTSE 250 jumped by circa +2.0%, the former benefitting from further weakness in the pound. Moving to Asia, the Nikkei 225 in Japan shed -0.9% (in yen terms) with the effects of the prior week’s interest rate hike by the Bank of Japan as well as the fallout from the DeepSeek release weighing on investor sentiment. As for China, the Shanghai Composite was broadly flat in what was a holiday shortened week for the Lunar New Year celebrations.

Regarding commodities, oil prices slipped as traders awaited news regarding President Trump’s anticipated tariff plans. Brent Crude retreated by -2.0% to $76.91. It was a second straight week of decline for oil which gave back all of its early week gains. Concluding with gold, the precious metal continued to trade around its record level with an additional +1.3% increase pushing it to $2,810 an ounce.

Week Ahead

Source: Workspace DataStream, 03/02/25
 

[1] T. Rowe Price – Global Markets Weekly Insight 31/01/2025

[2] European Central Bank – Monetary Policy Decisions Press Release 30/01/2025

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