Technology stocks faced significant pressure in premarket trading on Monday following reports of China's DeepSeek AI model outperforming prominent competitors such as Meta’s Llama 3.1, OpenAI’s GPT-4o, and Anthropic’s Claude Sonnet 3.5. The development has sent ripples through the markets, with Nasdaq Futures plummeting nearly 2.5% and S&P Futures losing 1.4%. Investors are grappling with these shifts amid a complex backdrop of economic developments, including the US Dollar's fluctuating performance and potential tariff increases.
The US Dollar experienced weakness against the British Pound, despite the USD Index maintaining positive territory above 107.50 in the European morning. Gold prices have also started the week on a weaker note due to a modest recovery in the USD. Meanwhile, the GBP/USD pair recorded impressive gains last Friday, rising about 2.5% over the previous week, showcasing its strength against the backdrop of broader market volatility.
Adding to the global economic uncertainty, US President Donald Trump's advisers have shown no willingness to negotiate or hold talks with Canada or Mexico. Plans are in place to impose 25% tariffs as soon as February 1, a move that could have significant trade implications. This development has contributed to a risk-averse market atmosphere, from which the US Dollar is benefiting early Monday.
In Asia, the Bank of Japan (BoJ) recently raised its policy rate by 25 basis points. However, BoJ Governor Kazuo Ueda has refrained from committing to further policy tightening, leaving markets uncertain about future monetary policy directions. The Japanese Yen has struggled to gather strength against major rivals following the BoJ's decision.
The Swiss Franc remains a safe-haven currency due to Switzerland's strict banking laws that offer enhanced capital protection for investors. This reputation is bolstered by its consistent performance during periods of heightened market tension. The major currencies that tend to rise during "risk-off" periods include the US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF).
In the commodities market, gold (XAU/USD) has edged lower to start the week but manages to hold above $2,750. Market participants are closely watching these movements as gold typically serves as a hedge against economic uncertainty.
Cryptocurrencies are not immune to the current market pressures. Dogecoin and Shiba Inu prices continue to decline on Monday after correcting more than 6% in the previous week. This trend reflects broader market apprehensions and the shifting sentiment among investors.
Capital market participants are anticipating a series of interest rate cuts this year in both the Eurozone and the US, adding further complexity to the global financial landscape. This anticipation reflects the varied approaches central banks may take in response to evolving economic conditions.