Market players were eager to hit the ground running as soon as the opening bell rang, adjusting portfolios to weekend developments and fresh AI-related updates.
Volatility remained elevated throughout the day, as sentiment swung this way and that, leading to a mixed finish for risk assets.
Here are the latest headlines and how financial assets performed:
Headlines:
- Over the weekend, U.S. President Trump threatened and then pulled back on 25% tariff threats to Columbia after reaching a deal on migrants
- On Sunday, Israel and Lebanon agreed to extend their ceasefire until Feb. 18 to allow more time for the withdrawal of Israeli troops
- Chinese Industrial Profits for December 2024: -3.3% y/y (-5.0% y/y forecast; -4.7% y/y previous)
- Chinese NBS Manufacturing PMI in January: 49.1 (50.3 forecast; 50.1 previous)
- Chinese NBS Non-Manufacturing PMI in January: 50.2 (51.8 forecast; 52.2 previous)
- Chinese company DeepSeek reached a breakthrough in less energy-intensive AI efforts, weighing on global tech shares
- German Ifo Business Climate for January 2025: 85.1 (84.5 forecast; 84.7 previous)
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Trump’s tariffs drama with Colombia over the weekend sparked risk-off vibes in the markets early on, followed by weaker-than-expected Chinese PMI figures that cast more doubts on global growth prospects.
As it turned out, the U.S. President threatened Colombia with tariffs when the country refused permission to land to U.S. airplanes transporting deported Colombians. Although an agreement was reached before tariffs materialized, the tensions kept investors on edge about future trade repercussions.
A few hours into the Asian session, reports of China’s AI breakthrough with DeepSeek that promised less energy-intensive efforts weighed heavily on tech sector stocks, including industry leader Nvidia which eventually suffered a massive 18% decline in market cap. This development sent shockwaves through global stock markets and contributed to the S&P 500’s 1.5% decline and Nasdaq’s 3% drop.
Treasury yields reflected the flight to safety, as the initial market reaction favored traditional safe-haven assets. However, a return to risk-taking was eventually seen, as sectors tied to the real economy started to rebound on speculations that AI developments could soon be made more accessible.
Energy markets showed significant weakness, with WTI crude prices declining over 2% during the session. Gold also experienced pressure but showed relative resilience compared to other risk assets due to market uncertainty while bitcoin struggled to hold on to the $101K level.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar experienced a mixed trading session, with its performance varying against different currency pairs throughout the day. Initial strength was evident as risk-off flows from the Chinese PMI data and weekend tariff tensions supported the lower-yielding U.S. currency.
The Japanese yen emerged as one of the day’s strongest performers, benefiting from the risk-off environment and declining Treasury yields. European currencies initially faced pressure but managed to recover some ground during the London session.
By day’s end, the dollar closed mixed, with notable strength against some risk-sensitive currencies while ceding ground to safe-haven rivals like JPY and CHF.
Upcoming Potential Catalysts on the Economic Calendar:
- U.S. headline and core durable goods orders at 1:30 pm GMT
- U.S. S&P Composite-20 HPI at 2:00 pm GMT
- U.S. CB consumer confidence index at 3:00 pm GMT
- U.S. Richmond manufacturing index at 3:00 pm GMT
- BOJ monetary policy meeting minutes at 11:50 pm GMT
There’s not much in the way of top-tier reports ahead of the New York session, likely keeping overall market sentiment in the driver’s seat before the U.S. prints a handful of data points.
Of particular interest among these is the CB consumer confidence index, which tends to serve as a preview of spending for the current month. After that, keep an eye out for the BOJ meeting minutes which could contain clues about their future policy moves!
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