Stock Index Futures Tumble on China AI Edge, Fed Meeting and Big Tech Earnings in Focus

March S&P 500 E-Mini futures (ESH25) are down -2.43%, and March Nasdaq 100 E-Mini futures (NQH25) are down -3.78% this morning as worries mount that a cheaper artificial intelligence model from China could challenge the supremacy of U.S. technology.

Chinese artificial intelligence lab DeepSeek’s latest chatbot threatened to disrupt U.S. firms’ dominance in AI, triggering a global selloff in the tech sector. DeepSeek announced that it developed AI models nearly on par with American rivals, despite using inferior chips and less data. This has raised questions about the lofty valuations of AI-related stocks and Silicon Valley’s business model, which relies heavily on extensive research and development spending. On Monday, DeepSeek’s AI Assistant surpassed ChatGPT to become the highest-rated free application on the U.S. Apple App Store.

“While it remains to be seen if DeepSeek will prove to be a viable, cheaper alternative in the long term, initial worries are centered on whether U.S. tech giants’ pricing power is being threatened,” said Jun Rong Yeap, a market strategist at IG Asia.

U.S. President Donald Trump’s weekend spat with Colombia further contributed to the bearish sentiment. Trump initially announced sweeping tariffs on the country but abruptly reversed course after reaching a deal on the return of deported migrants.

Investors now look ahead to earnings reports from some of the biggest tech heavyweights, the Federal Reserve’s interest rate decision, as well as the release of the Fed’s favorite inflation gauge and other key economic data later in the week.

In Friday’s trading session, Wall Street’s major equity averages ended lower. Texas Instruments (TXN) slumped over -7% and was the top percentage loser on the S&P 500 and Nasdaq 100 after the analog chipmaker gave a lackluster Q1 forecast. Also, CF Industries Holdings (CF) slid more than -7% after JPMorgan Chase downgraded the stock to Underweight from Neutral with a price target of $75. In addition, CSX Corp. (CSX) fell over -2% after reporting weaker-than-expected Q4 revenue. On the bullish side, Meta Platforms (META) rose more than +1% after CEO Mark Zuckerberg said the company plans to invest up to $65 billion in AI projects in 2025.

Economic data released on Friday showed that the University of Michigan’s U.S. consumer sentiment index was revised downward to 71.1 in January, weaker than expectations of 73.3. At the same time, the U.S. January S&P Global manufacturing PMI rose to 50.1, stronger than expectations of 49.8 and the fastest pace of expansion in 7 months. Also, U.S. existing home sales rose +2.2% m/m to a 10-month high of 4.24M in December, stronger than expectations of 4.19M.

The U.S. Federal Reserve’s interest rate decision and Chair Jerome Powell’s post-policy meeting press conference will take center stage this week. After cutting rates three times in late 2024, Fed officials are widely expected to keep them unchanged on Wednesday, given signs of a strong U.S. economy. Market watchers’ focus will center on any additional clues about whether and when interest rates might be lowered further. U.S. rate futures currently price in slightly less than two interest rate cuts this year, with the first expected no earlier than June. 

Fourth-quarter earnings season shifts into high gear, and investors await fresh reports from high-profile companies this week, including Apple (AAPL), Tesla (TSLA), Microsoft (MSFT), Meta Platforms (META), AT&T (T), T-Mobile US (TMUS), Starbucks (SBUX), ServiceNow (NOW), IBM (IBM), Intel (INTC), Lam Research (LRCX), Visa (V), Mastercard (MA), Caterpillar (CAT), Comcast (CMCSA), United Parcel Service (UPS), Altria (MO), Exxon Mobil (XOM), Chevron (CVX), AbbVie (ABBV), Lockheed Martin (LMT), and General Motors (GM).

On the economic data front, the December reading of the U.S. core personal consumption expenditures price index, the Fed’s preferred inflation gauge, will be the main highlight. Investors will also be monitoring a spate of other economic data releases, including U.S. GDP (first estimate), the Conference Board’s Consumer Confidence Index, Durable Goods Orders, Core Durable Goods Orders, the S&P/CS HPI Composite - 20 n.s.a., the Richmond Fed Manufacturing Index, Goods Trade Balance, Wholesale Inventories (preliminary), Crude Oil Inventories, Initial Jobless Claims, Pending Home Sales, the Employment Cost Index, Personal Income, Personal Spending, and the Chicago PMI.

In addition, Fed Governor Michelle Bowman will deliver brief remarks on the economy and perspectives on mutual and community banks on Friday.

Today, investors will focus on U.S. New Home Sales data, which is set to be released in a couple of hours. Economists foresee this figure to stand at 669K in December, compared to 664K in November.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.534%, down -1.93%.

The Euro Stoxx 50 Index is down -1.38% this morning, kicking off the week on a negative note, while investors awaited a wave of corporate earnings, regional economic data, and the European Central Bank’s interest rate decision. Technology stocks tumbled on Monday as the success of Chinese AI startup DeepSeek raised concerns about the global leadership of established U.S. giants in AI. A survey released on Monday revealed that German business sentiment unexpectedly improved in January, driven by a more optimistic evaluation of the current economic situation. Meanwhile, market participants are awaiting the European Central Bank’s policy verdict on Thursday. The central bank is widely expected to lower its benchmark interest rate by 25 basis points as the Eurozone economy struggles to recover. Investors will be looking for any signals from the statement and the follow-up press conference by ECB President Christine Lagarde regarding the likely pace of future rate cuts. Eurozone’s preliminary GDP, flash inflation figures from major regional economies, and confidence surveys will also be on investors’ radar this week. In corporate news, Ryanair Holdings Plc (RYA.I.DX) rose over +3% after the low-cost carrier reported better-than-expected quarterly profit.

Germany’s Ifo Business Climate Index was released today.

The German January Ifo Business Climate Index stood at 85.1, stronger than expectations of 84.9.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.06% and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.92%.

China’s Shanghai Composite Index closed lower today, reversing earlier gains as investors digested disappointing PMI data from the country. Chip-related stocks underperformed on Monday. At the same time, big data stocks surged amid excitement surrounding DeepSeek, a Chinese AI lab whose advanced model amazed the world. Data released by the National Bureau of Statistics on Monday showed that China’s factory activity unexpectedly slid into contractionary territory in January, while growth in the services sector slowed sharply, indicating the need for stronger fiscal stimulus despite recent efforts. Separately, data showed that profits at China’s industrial firms dropped 3.3% in 2024, marking the third consecutive year of decline. Meanwhile, lingering concerns about U.S. tariffs also dampened investor sentiment. “Tariff risks might have been delayed, but not derailed,” Morgan Stanley stated in a note, predicting that the weighted average tariff rate on China will increase from 10% at the end of 2024 to 26% by the end of 2025 and 36% in 2026. On the positive side, China unveiled new measures on Sunday to support the stock market, including initiatives to boost the growth of equity and bond ETFs. In corporate news, China Vanke rose over +2% in Hong Kong after the state-backed property developer announced last Friday that it would redeem its 2027 notes worth 1 billion yuan ($137.65 million) ahead of schedule in March.

The Chinese January Manufacturing PMI arrived at 49.1, weaker than expectations of 50.1. 

The Chinese January Non-Manufacturing PMI stood at 50.2, weaker than expectations of 52.1.

Japan’s Nikkei 225 Stock Index closed lower today. Technology and electronics stocks led the declines on Monday. The drop came after Chinese AI startup DeepSeek launched DeepSeek-R1, an open-source rival to OpenAI, which raised concerns about U.S. dominance in AI. Investor sentiment deteriorated further after a spat between the U.S. and Colombia reinforced worries about the weaponization of tariffs. On the positive side, data from the Cabinet Office released on Monday showed that Japan’s leading economic indicators index, which gauges the economic outlook for a few months ahead based on data such as job offers and consumer sentiment, was revised upward in November. Meanwhile, Japanese government bond yields fell on Monday, with investors evaluating the prospects for additional interest rate hikes in Japan this year. The Bank of Japan raised interest rates on Friday to their highest level since October 2008. BOJ Gov. Ueda, at a press conference, reiterated his commitment to pursue further interest rate hikes but stated he has no predetermined views on the pace and timing of such moves. Markets are still anticipating just one more 25 basis point rate increase this year. In corporate news, Mitsubishi UFJ Financial Group rose about +0.7% and Sumitomo Mitsui Financial Group gained over +1% after their main banking units announced plans to raise short-term prime lending rates. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed up +11.11% to 22.21.

The Japanese November Leading Index stood at 107.5, stronger than expectations of 107.0.

Pre-Market U.S. Stock Movers

Chip stocks are slumping in pre-market trading after Chinese startup DeepSeek said it could run its latest AI model on lower-cost chips. As a result, Nvidia (NVDA) is down over -10% and Broadcom (AVGO) is down more than -11%.

Cryptocurrency-exposed stocks are moving lower in pre-market trading, with the price of Bitcoin down more than -5%. MicroStrategy (MSTR) is down more than -6%. Also, MARA Holdings (MARA) is down nearly -7%, and Bit Digital (BTBT) is down over -7%.

Tevogen Bio (TVGN) jumped about +45% in pre-market trading after expanding its relationship with Microsoft in an AI-focused collaboration to advance its PredicTcell technology.

Logility (LGTY) surged over +24% in pre-market trading after Aptean agreed to acquire the company for $14.30 per share in cash. 

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - January 27th

AT&T (T), Brown&Brown (BRO), Nucor (NUE), WR Berkley (WRB), SoFi Technologies (SOFI), Alexandria RE (ARE), Graco (GGG), Equity Lifestyle (ELS), Western Alliance (WAL), Crane (CR), AGNC Invest (AGNC), ServisFirst Bancshares (SFBS), Sanmina (SANM), PotlatchDeltic (PCH), Bank of Hawaii (BOH), NBT Bancorp (NBTB), Seacoast Banking Florida (SBCF), Enterprise Financial (EFSC), Oxford Lane (OXLC), Hope Bancorp (HOPE), Dynex Capital (DX), Marten Transport (MRTN), Preferred Bank (PFBC), Transcat (TRNS), Five Star Bancorp (FSBC), Home Bancorp (HBCP), Bank of Marin (BMRC), HomeStreet (HMST).