Equity markets see losses on DeepSeek news, currencies watching Trump tariff talk

Good morning

Nvidia shares fell sharply yesterday, along with other tech firms, as the Chinese firm DeepSeek put a question mark over the valuations of AI-linked companies.  Nvidia shares  had traded as high as almost $149 Friday sank over 20%, hitting $117 at one stage before closing at $118.52.  The move dragged the Nasdaq some 3% lower, S&P 500 dropped around 1.5%. 

I have such limited expertise in the AI arena that it is really impossible for me to comment although in China things rarely happen without meticulous planning.  Have DeepSeek really managed to achieve the nigh on impossible on such limited funds or is there actually a lot more going on behind the scenes?  And the timing of the DeepSeek news, and the subsequent impact on the US equity markets, could be a message to Trump that he will not get things all his own way when it comes to trade and tariffs.  And regardless of how good the Chinese alternative is, there is a chance it would be banned for security reasons.  Therre is a long way to go with this story.

On the tariff front, the FT had reported that Trump may begin with tariffs of 2.5%, steadily increasing to 20% if no remedial action was taken.  Trump was later questioned on this and made it clear he wanted tariffs to be much larger than 2.5%.  He remains keen to impose tariffs on any sector or country that seems to be harming the US.

Despite the moves in equities, currencies were pretty rangebound.   GBPUSD traded up to 1.2525 while EURUSD hit 1.0530, both ended the London session off those highs but still at elevated levels (1.2475 and 1.0470) compared to recent lows.  GBPEUR had traded up near 1.1920 but by the close was back at 1.1885, again off the highs but still elevated. 

USDJPY traded down to 153.75 during that spell of USD weakness, the lowest level since mid-Dec but still well off the Dec lows that came in around 148.70.  GBPJPY found a little support again in the low 192’s, as it did a few times late last week, so far holding above there.

This morning we have seen a bit of USD buying, most likely as a result of Trump’s tariff comments, which brings GBPUSD down to 1.2440 as I type and EURUSD to 1.0430 which leaves GBPEUR higher at 1.1925.  The relative strength of GBP against EUR could be down to interest rate differentials, with ECB looking to cut this week but BoE far less clear with some warnings that we could see inflation start to tick up again, pushed up by higher food and energy prices.   USDJPY has taken advantage of the stronger dollar and is currently 155.70, with GBPJPY now 193.60.

I’m not sure what it is like where you are but the weather here has been pretty horrific, not major storm levels but a mix of wind, heavy rain and the occasional hail storm.  Doesn’t look like it’ll be getting much better any time soon.

Mark won’t be happy if I dpo’t mention the fact that Leeds are at the top of the Championship after drawing with Burnley last night, Burnley claiming their 20th clean sheet of the season so far and I’m toild they haven’t conceded in the league since 21st December, so perhaps no surprise it finished 0-0.  I reckon both teams will be happy with that.   . 

US durable goods likely to be the highlight today, perhaps overshadowed by any developments on the AI story.  Overnight we have Aussie inflation as well as the minutes from the last BoJ meeting, be interesting to see how discussions went for the rate rise and whether we learn anything about future rate moves.  For now I don’t think further rate rises are expected for a few months.

Have a great day

-  09.00 ECB bank lending survey

-  13.30 US durable goods orders

-  14.00 US house prices

-  14.30 ECBs Cipollone speaks

-  23.50 BoJ minutes

-  00.30 AUS CPI

GBP catches a bid, markets await FOMC, ECB and BoC rate announcements this week

Good morning

Some weaker US PMI and sentiment data late last week sent the US dollar lower with GBPUSD hitting 1.2500 and EURUSD reaching 1.0515.  Between GBP and EUR it was certainly the former which benefitted most, GBPEUR traded up from a Friday low around 1.1815 to a high this morning of 1.1910.  Perhaps it was the expectation of a cut in ECB rates this week that sent EUR lower, or perhaps GBP was boosted by Trump’s comments that Starmer is doing a decent job and the pair have a good relationship.  Reports suggest they’ll meet in the coming weeks. 

We have seen a bit of USD buying this morning which has taken GBPUSD to 1.2450 but GBP is otherwise up across the board, now 1.9810, 2.1900, 1.7910 and 193.30 against AUD, NZD, CAD and JPY respectively. This is slightly out of kilter with some of the headlines I am reading about the UK economy, profit warnings and job fears but there is some hope we’ll hammer out some sort of tariff-free EU trade deal at some point. 

Trump has been flexing his muscles after Colombia refused to allow a flight to land that was carrying deported Colombians from the US.  Trump immediately slapped 25% tariffs on Colombia, who very quickly relented, let the flights land and the tariffs were removed.  Gives a clear indication, if any were needed, of Trump’s intent and determination.

Meanwhile US dominance in the AI world is under threat after attention turned to DeepSeek, a Chinese firm claiming to have developed a credible AI model at a considerably lower cost than US counterparts.  I presume we’ll see US tech firm shares such as Nvidia dropping on the US open.

Sport over the weekend didn’t go exactly to plan, Spurs managed to lose to lowly Leicester who are now only seven points behind Spurs in the league table.  Its not looking good and there are huge question  marks over whether Postecoglou will be backed by the Spurs board or whether his position is under threat.  A huge amount rides on the Europa League match on Thursday.  But with Spurs next premier league matches against Brentford and Man Utd I’m not sure I’m confident we’ll be cllmbing up that league table any time soon.

Elsewhere, Bournemouth put on an incredible display to beat high-flying Forest 5-0, while Man City came from behi9ng to beat Chelsea. Liverpool keep their lead at the top with a win, Arsenal are doing their best to keep up but for now it looks like Liverpool’s to lose.

Quiet day data-wise today and there is little in the way of UK data this week.  Plenty still to watch mind you, with ECB and BoC rate announcements, both expected to cut rates 25bps, while FOMC are likely to keep rates unchanged.  We’ll also have US GDP and core PCE, EU GDP and unemployment and Aussie inflation.   

Have a great day, looks like being a wet week weather-wise and a chance we’ll get more strong winds.  Best stay in and finish those tax returns…..

-  09.00 German IFO

-  15.00 US new home sales

USD weakness continues as Trump downplays China tariffs

Good morning

The USD weakness theme continues, this time helped along by Trump who is demanding Fed’s Powell cuts rates, suggesting he knows better than the Fed officials who are tasked with setting monetary policy.  Trump’s comments that he’d prefer to not use tariffs on China but instead make a deal with Xi, also helped push USD lower.  GBPUSD has been to 1.2415, EURUSD to 1.0495, the highest we’ve seen since mid-Dec.  Both pairs currently just 10 pips or so off those highs. 

Equities are trading firm with the likes of S&P500 making new highs, China stocks are higher and AUD, something of a proxy for China, is also up, AUDUSD now 0.6320, highest since mid-Dec, with GBPAUD trading towards recent lows around 1.9600.

GBPEUR around the 1.1820 area having been up around 1.1870 earlier this morning, EUR making gains after better than expected PMI’s, with the main EU number still to come at 9am.  We have traded above 1.1800 for almost exactly five months, there has been downside pressure this week but so far the support around 1.1815 is holding. 

BoJ did raise rates by 25bps to 0.5% and JPY did appreciate as a result.  USDJPY traded down from 156.40 pre-announcement to 154.85 following the press conference, almost matching the lows seen Tuesday morning.  Of course the generally lower USD has helped.  USDJPY now 155.20 as I type, GBPJPY 192.40  which is exactly where it was this time yesterday.  Japan CPI had been released before the rate decision , coming in hot at 3.6% against 2.9% previously, no surprise then that BoJ pushed their inflation forecasts higher.  2025 CPI is now expected to reach 2.4% from 1.9%.  GDP forecasts were unchanged.

In the UK, storm Eowyn is set to wreak havoc as a rare red weather warning takes hold across Ireland and Scotland.  Flights and ferries are being cancelled across Ireland.  Even down here we’ve already had some decent rain and strong gusts with possibly more to come, indeed we have a pretty grim forecast for the next few days.

In sport, Spurs managed a rare win with a 3-2 victory over Hoffenheim although in true Spurs fashion they did make it rather difficult for themselves.  Still, a win is a win.  Man Utd got a late goal to win 2-1 against Rangers.  Premier League action this weekend sees Spurs take on Leicester who are currently second from bottom.  Spurs should win but then again they ‘should’ have beaten Ipswich, Wolves, Crystal Palace and Everton to name just some of the teams Spurs have lost to.  Leicester haven’t had a point since their draw with Brighton on 8th Dec.  This is their chance…  Pick of the matches is surely Man City v Chelsea, although Bournemouth v Forest will be an interesting game between two teams currently going well.

Have a great weekend as and when it comes.  Hope the storm doesn’t affect you too much….

-  09.00 EU manufacturing, services PMIs

-  09.30 UK S&P manufacturing, services PMIs

-  10.00 ECBs Lagarde speaks

-  11.00 ECBs Cipollone speaks

-  14.45 US S&P manufacturing, services PMIs

-  15.00 US Michigan sentiment survey