European equities rebound amid tariff jitters and tech shakeup from DeepSeek AI breakthrough

EU mid-market update: European equities rebound amid tariff jitters and tech shakeup from DeepSeek AI breakthrough; Nvidia selloff was largest single day decline of market cap in history.

Notes/observations

- Trade tensions escalate as Trump doubles down on tariff threats, targeting metals (steel, aluminum, copper), chips, and pharmaceuticals. Reports suggest incoming Treasury Secretary Bessent favors a 2.5% universal tariff, but Trump insists on “much bigger” rates. Euro tumbled 0.6% to $1.042, while commodity-linked currencies (AUD, SGD) weaken.

- DeepSeek’s AI breakthrough sparks macro rethink and discussion whether it is US-China’s “Sputnik moment”: Open-sourced and extra-efficient DeepSeek-R1, a reasoning model built on the foundation of DeepSeek-V3, challenges US tech dominance, fueling concerns about concentration risk in mega-cap tech. $1T was wiped off the market and Bitcoin recovered to ~$102K as risk appetite stabilizes. Trump frames DeepSeek as a “wake up call” and “positive” catalyst to spur US innovation, but lawmakers’ eye tighter China export curbs. Some Tier1 analysts also think lower cost of compute could bring down AI computing costs of sales and drive better margin on AI enabled offerings, which also could provide a catalyst for adoption/proliferation of AI agents.

- European data mixed: French consumer confidence beats at 92 v 90 consensus, but Spain’s unemployment steals focus after Q4 jobless rate drops to 10.6% (lowest since 2008), driven by services sector hiring. UK food inflation hits 9-month high (BRC data), tightening pressure on BoE ahead of next week’s meeting.

- FTSE100 lifted by Rentokil’s 5% surge post-management shakeup; Mining stocks (Anglo, Glencore) slump on Trump’s copper tariffs. DAX higher as Sartorius soars 10% on strong earnings, Merck gains 4% pre-results. Tech stays wobbly, ASML +1.0% after Monday’s 7.5% plunge. STOXX 600 edges up with SAP flat after hiking profit guidance.

- Central banks in focus: Fed (Wed): Expected pause, but BNP Paribas warns Trumpflation could delay cuts until 2026. Markets price 47bps of 2025 easing. ECB (Thu): 25bps cut expected, dovish signals likely, but tariff risks overshadow rate outlook.

- Asia closed mixed Nifty50 outperforming +0.6%. EU indices are +0.5-0.8%. US futures are +0.1-0.6%. Gold +0.2%, DXY +0.5%; Commodity: Brent +0.5%, WTI +0.6%; Crypto: BTC +3.6%, ETH +3.7%.

Asia

- Japan Dec PPI Services Y/Y: 2.9% v 3.2%e.

- UK Jan BRC Shop Price Index Y/Y: -0.7% v -0.7%e.

- Australia Dec NAB Business Confidence: -2 v -3 prior.

- Former BOJ board member Sakurai believed that the BOJ to raise short-term rates around June or July.

Europe

- SNB Chairman Schlegel noted that inflation to be relatively low this year with some monthly readings possibly dipping below zero. Reiterated view that taking rates negative was not a decision the central bank would take (lightly), but would do so if really necessary.

Americas

- Pres Trump stated that was too soon put tariffs on semiconductors; Would be placing tariffs on steel, aluminum and copper; To look at tariffs for pharmaceutical and steel companies; Promised to fastrack approval for anyone building a plant in the US for electric generation; to put tariffs 'on people who meant us harm'; The release of DeepSeek AI should be a wakeup call.

- Senators approved Bessent’s nomination to the role of Treasury Sec (68-29) in a bipartisan vote.

- Treasury Sec Bessent said to propose universal tariff plan that would raise tariffs by 2.5% each month [**Note: Pres Trump warned he wants tariffs 'much bigger than 2.5%').

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.65% at 533.12, FTSE +0.48% at 8,544.38, DAX +0.44% at 21,374.47, CAC-40 +0.39% at 7,937.41, IBEX-35 +0.79% at 12,110.00, FTSE MIB +0.34% at 36,316.00, SMI +0.78% at 12,531.60, S&P 500 Futures +0.36%].

Market focal points/key themes: European indices open mixed but quickly took on a decidedly positive inclination; cautious return of risk appetite though focus remains on impact of DeepSeek on the AI sphere; better performing sectors include industrials and technology; real estate and materials among underperforming sectors; tech sector benefiting from rebound from yesterday’s losses; miners under pressure on potential metal tariffs to be implemented by White House; ING sells Russia unit to Global Development; reportedly OTB Group looking to acquire Capri’s Versace; focus on US durable goods coming out later in the day; earnings expected in the upcoming Americas session include Boeing, General Motors, LCMH and Logitech.

Equities

- Consumer discretionary: Halfords [HFD.UK] +18.0% (Q3 trading update), Pets at Home [PETS.UK] -4.5% (Q3 trading update), RS Group {RS1.UK] -6.5% (trading update).

- Energy: Siemens Energy [ENR.DE] +3.5% (prelim results).

- Healthcare: Sartorius Stedim Biotech [DIM.FR] +11.5% (prelim FY results), Comet [COTN.CH] +3.0% (prelim FY results) - Industrials: Rentokil Initial [RTO.UK] +4.0% (FY trading update), Smiths Group [SMIN.UK] -2.0% (cyber security incident) - Technology: SAP [SAP.DE] +1.0% (Q4 results, raises FY25 guidance), ASML [ASML.NL] +0.5%, Nvidia [NVD.DE] +5.5% (chip sector bouncing from yesterday sell off; Alibaba’s Qwen released a new family of AI models, Qwen2.5-VL, similar to the model powering OpenAI’s recently launched Operator), Sartorius [SRT.DE] +12.0% (prelim FY results), Netcompany [NETC.DK] -16.5% (Q4 results), Computacenter [CCC.UK] +4.5% (trading update) - Materials: Wacker Chemie [WCH.DE] +0.5% (prelim earnings).

Speakers

- ECB Q4 Bank Lending Survey noted that bank tightened corporate credit more than predicted. Expected further tightening for firm and consumer loans, slight tightening for housing in Q1 2025.

- UK PM Starmerstressed that its top priority was growth. Govt was hearing 'loud and clear' message to cut regulation and was hard wiring growth into all cabinet decisions.

Currencies/fixed income

- Calm returned to markets after Monday’s tech-related sell-off. Focus on the Wed FOMC and Thurs ECB rate decisions. Dealers noted that any major surprises in ether outcomes were unlikely, The USD was firmer aided by Trump noting that he sought to enact across-the-board tariffs that are "much bigger" than 2.5%.

- Bitcoin recovered as it moved back above the $100K level.

- EUR/USD: 1.0430.

- USD/CHF: 0.9064.

- GBP/USD: 1.2440.

- USD/JPY: 155.60.

- (DE) German 10-year Bund yield at 2.54%.

- (FR) France 10-year Oat yield at 3.28%.

- The 10-year Italy/German Gov't bond spread at approx. +109bps.

- The 10-year French/German Gov't bond spread at approx. +74bps.

Economic data

- (JP) Japan Dec Final Machine Tool Orders Y/Y: 12.6 v 11.2% prelim.

- (FI) Finland Dec House Price Index M/M: +1.4% v -1.6% prior; Y/Y: -0.6% v -3.0% prior.

- (NO) Norway Dec Retail Sales (with auto/fuel) M/M: -0;1% v +0.4% prior.

- (ZA) South Africa Nov Leading Indicator: 114.7 v 114.1 prior.

- (FR) France Jan Consumer Confidence: 92 v 90e.

- (ES) Spain Q4 Unemployment Rate: 10.6% v 11.1%e.

- (HK) Hong Kong Dec M3 Money Supply Y/Y: 2.8% v 2.4% prior; M2 Money Supply Y/Y: 2.7% v 2.3% prior; M1 Money Supply Y/Y: 1.3% v 1.6% prior.

Fixed income issuance

- (AT) Austria Debt Agency (AFFA) opened its book to sell EUR-denominated 10-year and 25-year bonds via syndicate.

- (NL) Netherlands Debt Agency (DSTA) sold €2.45B vs. €2.0-2.5B in new 2.5% Jan 2030 DSL bonds; Avg Yield: 2.493% v 2.481% prior.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2035, 2044 and 2053 bonds.

- (UK) DMO sold £1.5B in new 1.125% Sept 2035 inflation-linked Gilts (UKTi); Real Yield: 1.128%; bid-to-cover: 3.12x.

- (AT) Austria Debt Agency (AFFA) sold total €1.673B vs. €2.0B indicated in 3-month and 6-month Bills.

- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.75-3.0B indicated range in new 2.55% Feb 2027 BTP Bonds; Avg Yield: 2.61% v 2.47% prior; Bid-to-cover: 1.63x v 1.81x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €2.5B vs. €2.0-2.5B indicated range in 2029 and 2035 I/L Bonds (BTPei).

Looking ahead

- (CO) Colombia Dec Industrial Confidence: No est v -2.8 prior; Retail Confidence: No est v 17.6 prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €5.0B in new Mar 2027 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (EU) ECB allotment in its Monthly 3-month LTRO operation.

- 06:00 (IE) Ireland Q4 Preliminary GDP Q/Q: No est v 3.5% prior; Y/Y: No est v 2.9% prior.

- 06:00 (PT) Portugal Dec Retail Sales M/M: No est v 3.8% prior; Y/Y: No est v 8.8% prior.

- 06:00 (BR) Brazil Jan FGV Construction Costs M/M: 0.9%e v 0.5% prior.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.50%.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Dec Preliminary Durable Goods Orders: +0.5%e v -1.2% prior; Durables (ex-transportation): +0.4%e v -0.2% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.3%e v 0.4% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.2%e v 0.3% prior.

- 08:30 (BR) Brazil Dec Tax Collections (BRL): 260.0Be v 209.2B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Nov FHFA House Price Index M/M: 0.4%e v 0.4% prior.

- 09:00 (US) Nov S&P CoreLogic House Price Index (20-City) M/M: 0.30%e v 0.32% prior; Y/Y: 4.25%e v 4.22% prior; House Price Index (overall) Y/Y: No est v 3.60% prior.

- 09:00 (HU) Hungary Central Bank (MNB) Policy Statement.

- 10:00 (US) Jan Consumer Confidence: 105.6e v 104.7 prior.

- 10:00 (US) Jan Richmond Fed Manufacturing Index: -12e v -10 prior.

- 10:30 (US) Jan Dallas Fed Services Activity: No est v 9.6 prior.

- 11:30 (US) Treasury to sell 2-year FRN.

- 13:00 (US) Treasury to sell 7-Year Notes.

- 16:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected leave Overnight Rate Target unchanged at 5.00%.

- 16:30 (US) Weekly API Oil Inventories.

- 19:30 (AU) Australia Q4 CPI Q/Q: 0.3%e v 0.2% prior; Y/Y: 2.5%e v 2.8% prior.

- 19:30 (AU) Australia Q4 CPI Trimmed Mean Q/Q: 0.6%e v 0.8% prior; Y/Y: 3.3%e v 3.5% prior.

- 19:30 (AU) Australia Q4 CPI Weighted Median Q/Q: 0.6%e v 0.9% prior; Y/Y: 3.5%e v 3.8% prior.

- 19:30 (AU) Australia Dec CPI Y/Y: 2.5%e v 2.3% prior; CPI Trimmed Mean Y/Y: No est v 3.2% prior.

- 21:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected leave Overnight Policy Rate (OPR) unchanged at 8.00%.

- 22:00 (TH) Thailand to sell THB8.0B in Jun 2072 Bonds.

- 22:35 (JP) Japan to sell 5-year Climate Transition Bonds.