Commentary
U.S. stocks ended the week mostly lower, with the Nasdaq dropping sharply on Monday due to AI competition fears. Chinese AI firm DeepSeek unveiled an energy-efficient open-source model, triggering a 17% plunge in NVIDIA shares. However, strong earnings from Meta and Apple helped markets recover later in the week. Trade concerns also weighed on sentiment due to President Trump plans for 25% tariffs on Mexico and Canada, plus a 10% tariff on Chinese goods. Meanwhile, the Fed kept interest rates steady at 4.25%–4.50%, citing stable economic growth and persistent inflation. Core PCE inflation remained at 2.8% in December, above the Fed’s 2% target. The U.S. economy grew at 2.3% in Q4, driven by consumer and government spending. Treasury yields fell as market fears over DeepSeek’s AI impact eased, and investment-grade corporate bonds saw limited new issuances.
European stocks surged, with the STOXX Europe 600 Index hitting a record high (+1.78%) after strong earnings and an ECB interest rate cut. Germany’s DAX also reached a new peak, while Italy’s FTSE MIB (+0.75%) and France’s CAC 40 (+0.28%) saw smaller gains. The UK’s FTSE 100 climbed 2.02%, helped by a weaker pound. The ECB lowered rates by 0.25 percentage points to 2.75%, saying inflation is slowing but not yet under full control. Meanwhile, the eurozone economy stalled in Q4, with Germany and France shrinking, while Spain’s economy grew 0.8%. Inflation remained 2.8% in Germany and rose to 2.9% in Spain. In the UK, mortgage approvals reached their highest since September 2022, showing signs of housing market stability.
