The futures of major U.S. indices suggest a significant drop at the opening bell on Monday, continuing the downturn observed in Friday's session.
A significant factor influencing this trend is the technology sector's decline, notably with Nvidia (NVDA) experiencing an 11.5% decrease in pre-market activity. This decline follows DeepSeek's AI Assistant emerging as the top-rated free app on Apple's U.S. App Store, surpassing ChatGPT. This development has sparked doubts about the extensive capital expenditures in AI by Silicon Valley and the U.S.'s technological leadership in this sphere.
During Friday's trading, after a sluggish start, the market saw a downward shift. The S&P 500 retreated after setting a new intraday high. By the session's end, all major indices had fallen, with the Dow dropping by 148.82 points (0.3%) to 44,424.25, the Nasdaq declining by 99.38 points (0.5%) to 19,954.30, and the S&P 500 losing 17.37 points (0.3%) to 6,101.24. Nonetheless, these indices logged notable gains for the holiday-shortened week, with the Dow increasing by 2.2% and both the Nasdaq and the S&P 500 advancing by 1.7%.
Wall Street's emerging weakness might be attributed to apprehensions about the Federal Reserve's upcoming monetary policy meeting and interest rate forecasts. Although the Fed is widely expected to maintain current rates, traders will scrutinize the accompanying statement for any rate outlook indications.
Recent economic indicators have fueled concerns about the Fed's prolonged rate hold. However, many economists predict that the central bank may resume rate cuts in the first half of the year. The CME Group's FedWatch Tool currently shows a 71.1% probability of a rate reduction by at least a quarter point post the Fed's June meeting.
In the realm of U.S. economic data, revised figures from the University of Michigan revealed a more significant than anticipated dip in consumer sentiment for January, with the index adjusted down to 71.1 from 73.2, contrary to forecasts of no revision. This marks the first sentiment decrease in six months.
In December, the National Association of Realtors reported a substantial rise in existing home sales, surpassing expectations and reaching peak levels since the previous February.
Within the semiconductor sector, significant declines occurred, pulling the Philadelphia Semiconductor Index down 1.9%. Texas Instruments (TXN) led these losses, falling 7.5% after surpassing fourth-quarter expectations but offering pessimistic earnings guidance for the upcoming quarter. Meanwhile, oil and networking equities exhibited weakness, whereas pharmaceutical stocks rose, pushing the NYSE Arca Pharmaceutical Index up by 1.4%. Notably, Novo Nordisk (NVO)'s U.S.-listed shares jumped 8.5% following positive results from an obesity drug trial.
**Commodities and Currencies**
Crude oil futures edged down $0.46 to $74.20 a barrel, having previously inched up $0.04 to $74.66. After a previous session gain of $13.90 to $2,778.90 per ounce, gold futures have decreased by $17 to $2,761.90 an ounce. In currency exchanges, the U.S. dollar is now at 154.25 yen, down from 155.98 yen at Friday's New York close. Against the euro, it's trading at $1.0523, up from $1.0497 last Friday.
**Asia Market Overview**
Asian equity markets broadly declined on Monday in response to disappointing economic data from China, while investors also awaited upcoming interest rate decisions from the U.S. Federal Reserve and the European Central Bank for guidance. Gold prices decreased, and the dollar strengthened following U.S. President Donald Trump's brief tariff imposition on Colombia. Oil prices saw downward pressure as Trump reiterated criticism towards OPEC for high pricing.
China's Shanghai Composite ended slightly lower at 3,250.60, prompted by unexpected contractions in January's Chinese manufacturing activity and a pronounced slowdown in non-manufacturing growth, casting doubts on first-quarter growth and stimulus efficacy.Profits at China's industrial firms have experienced a decline for the third consecutive year in 2024, according to official data released on Monday. This trend underscores the pressing need for bolstered economic support.
In Hong Kong, the Hang Seng Index rose by 0.7% to reach 20,107.77, buoyed by gains in Chinese tech giants such as Tencent and Alibaba.
Conversely, Japanese markets saw a downturn as the decline in tech stocks overshadowed gains in the financial sector. The Nikkei 225 Index fell by 0.9% to 39,565.80, while the broader Topix Index edged up 0.3% to 2,758.07. Notable technology stocks, including Tokyo Electron, SoftBank Group, Advantest, and Fujikura saw declines ranging from 5-11%, influenced by the emergence of DeepSeek as a disruptive entity in the artificial intelligence landscape.
The Chinese company DeepSeek’s AI chatbot has risen to the top of the Apple Store’s download charts, casting doubts on Silicon Valley’s substantial AI capital expenditures and the enduring technological edge of the U.S. in artificial intelligence.
In the financial sector, Mitsubishi UFJ Financial saw an uptick of 0.7%, whereas Sumitomo Mitsui Financial and Mizuho Financial both gained 1.6%, spurred by expectations of stronger domestic profits driven by higher interest rates.
Market closures in Seoul, due to the Lunar New Year holiday, and in Australia, for Australia Day, were noted. New Zealand’s benchmark S&P/NZX-50 Index dipped by 0.2% to 12,999.72.
### Europe
European stocks declined on Monday as selling pressure mounted on artificial intelligence-related stocks due to skepticism about America's technological supremacy. Investors also processed discouraging economic data from China in anticipation of interest rate decisions from the Federal Reserve and European Central Bank expected later this week. The German DAX Index dropped by 0.8%, the French CAC 40 Index fell 0.5%, and the UK's FTSE 100 Index decreased by 0.2%.
Chip equipment manufacturer, ASML, saw significant losses after Chinese startup DeepSeek’s AI Assistant surpassed ChatGPT to become the leading free application available on Apple’s App Store in the United States. Siemens Energy, a maker of gas and wind turbines as well as power network equipment and transmission technology, also suffered a significant drop.
Conversely, low-cost airline Ryanair saw a rally following a report of better-than-expected quarterly earnings. British American Tobacco also experienced gains after the Trump administration retracted a plan to ban menthol cigarettes in the U.S.
### U.S. Economic News
The Commerce Department will release its report on new home sales for December at 10 am ET. Economists predict new home sales will rise by 0.9% to an annual rate of 670,000 in December, following a 5.9% increase to a rate of 664,000 in November.
Later, at 11:30 am, the Treasury Department is set to release the results of this month's auction for $69 billion in two-year notes. Additionally, results from the auction of $70 billion in five-year notes will be announced at 1 pm ET.
