Markets Overview
- ASX SPI 200 futures little changed at 8,369.00
- Dow Average up 0.5% to 44,648.27
- Aussie down 0.5% to 0.6285 per US$
- US 10-year yield fell 9.6bps to 4.5242%
- Australia 3-year bond yield little changed at 3.91%
- Australia 10-year bond yield little changed at 4.48%
- Gold spot down 1.1% to $2,739.32
- Brent futures down 2.0% to $76.96/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$300 Million 4.75% 2054 Bonds
- 11:30: (AU) Dec. NAB Business Conditions, prior 2
- 11:30: (AU) Dec. NAB Business Confidence, prior -3
Wall Street had a rough start to the week on concern that a cheap artificial intelligence-model from Chinese startup DeepSeek could make valuations of the technology that has powered the bull market tough to justify.
From New York to London and Tokyo, equities sank. While the slide in the US came after a surge to all-time highs, Monday’s selloff was triggered by a rise of DeepSeek’s latest AI model to the top of the Apple’s appstore. The S&P 500 dropped 1.5% and the Nasdaq 100 sank 3%. A closely watched gauge of chipmakers slid the most since March 2020. Nvidia Corp.’s 17% plunge erased $589 billion from its value — the largest in market history.
In a rush for safety, defensive industries like consumer staples and health care were bid. Treasuries rallied, driving yields to the lowest levels this year. Haven currencies including the yen and the Swiss franc climbed. Energy firms expected to profit from unprecedented AI demand sank, led by a 21% beatdown for Constellation Energy Corp.
“What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space,” said Chris Larkin at E*Trade from Morgan Stanley. “That could make this week’s megacap tech earnings even more critical to market sentiment.”
Monday’s plunge drove new fissures into a market narrative that prevailed since the re-election of Donald Trump in November, the America-first, tech-fueled uber bullishness that saw a clear upward path for risky assets spurred by deregulation, tax cuts and even government sponsorship of AI investment. Treasury yields slid sharply as haven-seeking investors laid aside concern – for today, anyway – that the new president’s policies will stoke inflation.
The severity of the selloff in US assets was proportionate to the weightings of AI-enabled firms in the biggest stock indexes. Even after a recent paring to curb their influence the cohort of Nvidia, Apple Inc., Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Alphabet Inc. account for about 40% of the Nasdaq 100. It’s roughly 30% in the S&P 500, leaving both gauges significantly exposed to concerted drops in those names.
“The sudden, adverse market reaction to DeepSeek indicates that some of the key assumptions that have been driving the AI trade, and hence major indices, are getting reassessed today,” said Steve Sosnick at Interactive Brokers. “Part of the today’s sudden adverse market reaction was a direct result of a ‘wave of complacency’ that overtook the equity market.”
A gauge of the “Magnificent Seven” megacaps slid 2.7%. The Philadelphia Stock Exchange Semiconductor Index fell 9.15%. The Russell 2000 slipped 1%. Wall Street’s favorite volatility gauge — the VIX — soared the most since about mid-December. The Dow Jones Industrial Average of blue chips rose 0.7%.
The yield on 10-year Treasuries declined nine basis points to 4.53%. The Bloomberg Dollar Spot Index rose 0.1%. Bitcoin slid 2.9% to $101,481.84.
