Global Markets Bracing for Volatility
The US tech sector’s sharp decline on Monday has set the stage for a tumultuous week in Asian markets. With mega-cap earnings reports, the Federal Reserve’s meeting, and ongoing uncertainty surrounding US President Donald Trump’s trade policies, investors are preparing for a wild ride.
Tech Sector Concerns
The buzz around Chinese startup DeepSeek’s low-cost AI model has sparked concerns about the high valuations of US tech companies. This has led to a sell-off in Asian exchanges outside of China, which spilled over into US stock futures. The S&P 500 dropped 1.5% after reaching an all-time high last week, while the Nasdaq plummeted over 3%. Nvidia, a leading chipmaker for AI applications, took a 17% hit.
Flight to Safety
As investors sought refuge, US Treasuries saw a surge in demand, pushing benchmark 10-year yields down 10 basis points to 4.53%. The dollar index also fell 0.1% to its lowest level since December 18.
Earnings Reports in Focus
This week, all eyes will be on a wave of earnings reports from mega-cap tech giants Tesla, Meta, Microsoft, and Apple. Investors will be scrutinizing these reports for clues on when the significant investments in artificial intelligence will start to pay off.
Trade Policies Remain a Key Concern
US trade policies continue to be a major market theme. China, Mexico, and Canada remain on edge as Trump has threatened to impose additional tariffs on these major trading partners. Meanwhile, Trump’s surprise threat of tariffs and sanctions against Colombia has left investors on high alert.
Federal Reserve Meeting
Later this week, the Federal Reserve will hold its first meeting of 2025, which will be closely watched by investors trying to decipher how Trump’s economic policies will impact the US central bank’s views on growth and inflation. While interest rates are expected to remain unchanged, Trump’s comments on wanting the Fed to lower borrowing costs may complicate the Fed’s job going forward.
European Central Bank Meeting
The European Central Bank will also meet this week, with expectations of a 25-basis-point cut to the key deposit rate. However, investors will be looking for hints on the path ahead as the threat of US tariffs clouds the European economic outlook.
Asian Markets
The economic data calendar in Asia is light on Tuesday, with many bourses observing extended holidays for the Lunar New Year. Markets in mainland China will be shut from Tuesday until February 5, while Singapore’s financial markets will be closed for a half day on Tuesday and all of Wednesday and Thursday.
Key Developments to Watch
Investors will be keeping a close eye on several key developments on Tuesday, including Japan’s service PPI, Australia’s Business Confidence Index, US durable goods, and the US 7-year Treasury auction.
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