Calm on the Macro Front

In focus today

From the US, December durable goods orders and January consumer confidence index from Conference Board are due for release. We will follow the latter for gauging how consumers feel about the economy and inflation as Trump begins his second term in the White House.

In the euro area, the bank lending survey from the ECB is scheduled for release.

In Hungary, the central bank will announce its policy rate – we and markets expect the central bank to leave the policy rate unchanged at 6.5%.

Economic and market news

What happened overnight

In the US, President Trump described DeepSeek, the Chinese AI start-up, as a “wake-up call” for US industries. He emphasised that US tech companies should focus intently on competing to win – and his desire to “unleash” US tech companies and “dominate the future like never before”. Concerns over DeepSeek’s AI model caused US stocks, particularly AI stocks such as Nvidia and Broadcom, to tumble yesterday. The emergence of DeepSeek, which develops AI models with lower development costs and without using the most advanced chips for training, raises questions about the US’s ability to maintain its lead over China in this field. It also challenges US AI bellwethers to continue developing competitive AI models without relying on the most advanced chips.

In politics, Scott Bessent won Senate confirmation as Treasury secretary with a 68-29 vote. Bessent has previously reiterated his support for extending the Tax Cuts and Jobs Act, while also declining to commit to raising taxes on the highest-earning individuals.
What happened yesterday

In Germany, the Ifo index recorded a small increase in January due to a better assessment of the current economy situation while expectations declined. The assessment of the current business situation rose to 86.1, which is the highest level in five months. This signals a possible bottoming out of activity following the previous years’ declining trend like the PMIs that exceeded 50 last week. However, with Ifo expectations declining to the lowest level in a year we continue to expect the German economy to stagnate in the first half of this year and then start growing in the second half due to lower monetary policy rates and rising real incomes.

Equities: Global equities declined yesterday with significant dispersion. The Far East markets were higher, European markets remained largely unchanged, while the US markets suffered a substantial downturn. A closer look at US performance reveals notable differences, with the Dow rising by 0.7% and the Nasdaq falling by 3.1%. This highlights a micro-level narrative we mentioned yesterday, centred around DeepSeek. The Chinese AI maker’s popular LLM model, R1, is potentially disrupting the AI world as we know it.

At company level, the biggest loser among the MAG 7 was Nvidia, which fell by 17%, while Meta, on the other hand, rose by 2%. Unsurprisingly, this is due to the initial analysis of which companies will potentially benefit from or be adversely affected by this development.

The next question that may gain attention in the coming days is whether this should be perceived as good or bad for equities overall. Yesterday, equities reacted negatively, but we argue that this development is incredibly positive from both an economic and inflation perspective and should therefore be seen as beneficial. Admittedly, many unknowns remain, and while we are not technical AI experts, based on the analysis we have seen so far, we confidently conclude that this will be net positive.

In the US yesterday, the Dow rose by 0.7%, the S&P 500 fell by 1.5%, the Nasdaq dropped by 3.1%, and the Russell 2000 decreased by 1.0%. Asian markets are mixed this morning, with Japan declining, while mainland markets in China are closed for the Lunar New Year. European futures are marginally higher this morning, while US futures are mixed, with the Nasdaq being slightly higher.

FI: Global bond markets took its cue from the equity market and the DeepSeek introduction as a catalyst for the global risk-off sentiment yesterday. The front end and the belly of the curve outperformed the long end with the 5y point down about 5bp in Europe and 9bp in the US. 10y Bund ASW widened 1.5bp to turn positive again for the first time in two weeks.

FX: EUR/USD was off to a strong start during yesterday’s session breaching the 1.0500 mark, as easing tariff risk premia fuelled broad-based USD weakness. The recent risk-off sentiment, triggered by the tech sector sell-off, has favoured JPY and CHF over the USD, as declining US yields, narrowing rate differentials between the US and the rest of the G10, and equity outflows from the US weighed on the USD. Overnight, however, more broad-based universal tariffs were flagged by the Trump administration, pushing EUR/USD firmly back towards the 1.0400 mark, highlighting the cross’ sensitivity to tariffs news. GBP was in for another day of gains as the fiscal induced risk premium slowly continues to fade. Oil prices fell sharply yesterday and have dropped firmly from recent highs putting additional pressure on oil-FX.