Global Market Quick Take Europe - 28 January 2025

Global Market Quick Take: Europe – 28 January 2025

Key points

• Equities: DeepSeek AI crash wipes $600B from Nvidia, tech rout spreads
• Volatility: VIX jumps; short-term risk spikes, mixed futures as markets digest AI-driven turmoil
• Digital Assets: Bitcoin stabilizes after yesterday’s turmoil, altcoins mixed
• Currencies: US dollar surges on latest comments on tariffs from Trump
• Commodities: Crude bid on Libya supply threat; gold holds above key support
• Fixed Income: US 10-year yield benchmark tested key 4.50% level without breaking
• Macro events: US Jan Consumer Confidence

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Macro data and headlines

• US President Trump boosted the US dollar late yesterday as he said he wanted “much bigger” universal tariffs than the 2.5% thought to be favoured by incoming Treasury Secretary Scott Bessent. Said Trump, “I have it in my mind what it’s going to be, but I won’t be setting it yet, but it’ll be enough to protect our country.”
• Risk sentiment stabilized after a significant downdraft yesterday, with the S&P 500 futures cutting its intraday losses since the Monday open about in half. Nvidia suffered a nearly 17% loss on the day, losing some USD 589 billion in market cap. Other AI-related stocks also suffered ugly sell-offs as the market digested the recent news that a Chinese AI outfit DeepSeek has created an AI model that can rival the performance of the best available elsewhere at a fraction of the cost and using far less expensive hardware, all while making available all of its technology transparent and open source.

Macro events (times in GMT)

ECB’s Villeroy to speak (0930), US Dec. Durable Goods Orders (1330), US Nov. Home Price Index (1400), US Jan. Consumer Confidence (1500), API’s Weekly Crude and Fuel Stock Report (2030)

Earnings events

• Today: LVMH, SAP, RTX, Stryker, Boeing, Lockheed Martin, Starbucks, GM, Royal Caribbean Cruises
• Wednesday: Microsoft, Meta, Tesla, ASML, T-Mobile US, ServiceNow, IBM, Danaher
• Thursday: Apple, Visa, Mastercard, Roche, Blackstone, Thermo Fisher Scientific, Shell, Caterpillar, Comcast, UPS, ABB
• Friday: ExxonMobil, Abbvie, Chevron, Samsung, Novartis, Eaton

For all macro, earnings, and dividend events check Saxo’s calendar.

Equities

• US: US equities sold off sharply on Monday, with the S&P 500 down 1.46% and Nasdaq plunging 3.07%, driven by AI-sector turmoil after China's DeepSeek launched a highly efficient, low-cost AI model. Nvidia collapsed 17%, wiping $600 billion in market cap, while Broadcom (-17.4%), Oracle (-13.8%), and Vertiv (-29.9%) also saw deep losses. The Dow (+0.65%) held firm, buoyed by defensive stocks as bond yields declined. Futures are stabilizing ahead of earnings from Boeing, Lockheed Martin, Starbucks, and General Motors, while investors brace for the Fed’s interest rate decision and key inflation data later this week.
• Europe: European stocks fell, with the STOXX 50 down 0.6% and STOXX 600 flat, as tech and industrials dragged markets lower. ASML (-7.5%), ASMI (-12%), and Infineon (-2%) tracked the global chip sector’s sharp declines, as DeepSeek’s AI breakthrough rattled investor sentiment. Schneider Electric (-10%) and Siemens (-4%) also struggled. However, luxury and banking stocks held firm, with LVMH up 3% ahead of earnings and Ryanair gaining 3.2% on upbeat results.
• Asia: Asian markets were mixed, with Japan’s Nikkei 225 down nearly 1%, as chip-related stocks plunged following Wall Street’s AI selloff. Advantest (-10%), Tokyo Electron (-4%), and SoftBank (-4.7%) led the losses. In contrast, Hong Kong’s Hang Seng (+0.14%) edged higher in holiday-thinned trade, with Alibaba (+4.3%) and Baidu (+3.6%) benefiting from optimism surrounding China’s AI advancements. Chinese and South Korean markets remained closed for the Lunar New Year holiday.

Volatility

Market volatility spiked intraday to 22.51 before settling at 17.90 (+20.54%), with short-term measures surging (VIX1D +63%, VIX9D +43%) as traders positioned for a volatile week. VIX futures rose to 17.86 (+1.40%), reflecting heightened hedging demand. S&P 500 and Nasdaq futures remain mixed, with SPX slightly down (-0.07%) and NDX recovering (+0.20%). With Fed policy, key earnings (Apple, Microsoft, Tesla, Meta), and PCE inflation data looming, traders anticipate continued turbulence.

Digital Assets

Bitcoin rebounded 0.97% to $103,033, bouncing off sub-$100K levels after heavy selling on Monday. AI-sector turmoil and Trump’s vague crypto policies kept sentiment cautious, while altcoins showed mixed performances. Ethereum (+0.76%), Solana (+2.53%), and XRP (+1.96%) recovered, but crypto-related stocks like Coinbase (-6.71%) and Riot (-15.44%) took heavy losses. Trump’s $TRUMP memecoin rebounded 12%, after wiping out 60% of its post-launch value in recent weeks.

Fixed Income

• Yesterday’s risk-off episode on the fears of disruptive new players in the AI space drove a significant bond rally, but the critical 4.50% level in the benchmark US 10-year treasury yield held – re-emphasizing its importance. Yields rose overnight as sentiment improved slight and perhaps as well on the latest Trump rhetoric on tariffs.
• The US 2-year yield dipped to a new low and touched 4.17% briefly before backing up to 4.21% as risk sentiment recovered yesterday, though odds remain very low of a Fed rate cut in March (the Fed is seen holding steady at tomorrow’s meeting).

Commodities

• Crude prices trade a tad firmer in Asia after slumping 2% on Monday amid general risk aversion caused by the sell off among AI-related stocks. Trump meanwhile continues his tariff threat which carries the risk of trade war that ultimately could lead to lower growth and demand for fuel products. Instead, prices have received a lift from another supply disruption in Libya that may impact hundreds of thousands of barrels of exports.
• US natural gas futures plunged 8% on Monday as weather forecasts shifted warmer for February
• Gold trades lower for a second day after failing to print a fresh record high on Friday but still holding above support around USD 2725. Overall, sentiment remains supportive with investors seeking havens amid an unpredictable Trump, as well as fiscal and inflation concerns. An elevated hedge fund long/short ratio potentially the biggest short risk combined with fresh dollar strength.
• Trump’s tariff threat on Columbia, a top three global producer of Arabica coffee, briefly saw futures prices in New York spike to a fresh record as an already tight market could have gotten even tighter.

Currencies

• The latest headlines from US President Trump on imposing universal tariffs against US trading partners boosted the US dollar sharply across the board late yesterday.
• USDJPY reversed all of the day’s losses already early in the Asian session after the JPY had strengthened on a dip in US treasury yields and general risk-off episode yesterday. EURUSD also dipped back below 1.0450 after trading well north of 1.0500 yesterday and just below that level just before Trump’s comments.