Markets
Not the start and the first measures from the Trump 2.0 administration nor a big eco data surprise and the anticipated central bank reaction, but a Chinese artificial intelligence start-up (DeepSeek) triggered the first big volatility moment of 2025. The AI language learning model of the Chinese company is said to provide high profile results comparable to its American competitors at a much lower price. It also questions the viability of massive capital investments in high-end chips and extensive computing power. This also questions elevated valuations for multiple companies working in the IT supply chain. European equities and US equity futures nosedived this morning.
The Nasdaq future at some point lost > 5.0%, but pressure eased slightly as US investors entered the fray. Even so, volatility remains elevated. The Nasdaq and the S&P 500 currently lose 3.0% and 1.75% respectively. The EuroStoxx 50 currently declines 0.75 %. For indices of several EU member states, declines remain limited (e.g. MIB +/- unchanged). The (predominantly US driven) equity sell-off also spilled over the other markets. US Treasuries serve as a preferred safe haven. US yields are off the intraday lows, but are still ceding between 7.0 bps (2-y) and 9 bps (5-y) in volatile trading. Declines in EMU yields are less pronounced with German yields ceding about 3-4 bps across the curve. German IFO business climate showed a mixed picture. The headline index improved (85.1 from 84.7) on an improvement in the current assessment, but German companies even gain turn more pessimistic on future expectations. The tone of the report after feels a bit disappointing after Friday’s PMIs. Despite the overall market turmoil, oil hardly declines further after a substantial correction since mid this month. Brent holds near $78 p/b).
On FX markets, the risk-off narrative is a bit less straightforward as is the case in equity and FI markets. With potential impact of the DeepSeek developments mainly questioning US AI/tech dominance, the dollar isn’t able to take up its traditional safe haven function. The yen outperforms among the majors with USD/JPY falling from an 156 close on Friday to currently trade near 154.2. In Europe, the Swiss franc stages a comeback after last week’s setback (EUR/CHF 0.945 from 0.951). Even the single currency reversed earlier intraday losses with EUR/USD rebounding from the 1.046 area to currently trade near 1.052 on broader USD selling. The impact of the US-instigated risk-off on smaller currencies also remains rather modest. EUR/GBP trades little changed in the 0.841 area. The Aussie dollar underperforms, both against the dollar (0.63) and the euro (EUR/AUD 1.672). The likes of the NOK and the SEK also incur modest losses against the euro, but are holding with recent ranges. A similar pattern also develops from CE currencies even as the damage remains fairly limited (EUR/CZK 25.10, EUR/HUF 409.0, EUR/PLN 4.22).
News & Views
More members of the National Bank of Poland’s monetary committee break with governor Glapinski’s (solo?) view that rate cuts will only be something for 2026. MPC Duda referred to room to cut the policy rate by the end of the year with Janczyk putting the option on the table as well. That makes at least 5 out of 9 members not ruling out a H2 2025 move. The July inflation report, coming after presidential elections and by that time presenting a more precise impact on fiscal policy (energy subsidies) on the path of inflation, seems to be the one to start readying a discussion on the topic. Rate cuts, if any, should remain small in size according to Duda (25 bps steps). EUR/PLN rebounds in today’s tough risk climate but preserves last week’s technical break below EUR/PLN 4.25 support.
EU foreign ministers agreed to extend again the sanctions on Russia. They have to do so every six months. EU foreign policy chief Kallas said that this way it will continue to deprive Moscow from revenues to finance its war. The deal came after Hungarian prime minister Orban lifted his opposition in place since December. He wanted to wait the inauguration (and reaction function) of Donald Trump together with getting several energy assurances. The EC will continue discussions with Ukraine on the supply to Europe through the gas pipeline system and is willing to associate Hungary and Slovakia in the process.
 triggered the first big volatility moment of 2025. The AI language learning model of the Chinese company is said to provide high profile results comparable to its American competitors at a much lower price. It also questions the viability of massive capital investments in high-end chips and extensive computing power. This also questions elevated valuations for multiple companies working in the IT supply chain. European equities and US equity futures nosedived this morning.){kind=link}