Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 27/01/25
Investors will be watching for any escalation in trade tensions, which could create volatility, and mega-Tech earnings announcements
US Technology shares declined significantly on Monday, as China-based AI company DeepSeek presented its DeepSeek V-3 LLM that seems to outperform other open-source models and achieve performance comparable to leading closed-source models (like GPT-4 and Claude-3.5-Sonnet) costing less and using less-powerful NVIDIA H800 chips -- a reduced version of Nvidia's H100 chips designed to comply with US chip export restrictions to China.
The Nasdaq index decreased by -3.1% (+25% yoy), albeit with sizeable deviation across single names. While low-cost though efficient large-language models could be negative for chip providers, they may well accelerate penetration across industries bringing down AI-related costs and increasing margins on AI-enabled products and services.
With the top 10 stocks by market capitalization accounting for circa 35% of the total index value and price to earnings multiples at elevated levels of 22.2x times 12-month forward earnings, the S&P500 looks vulnerable (-1.5% on Monday 28th).
Corporate earnings announcements will set the tone this week, with Microsoft, Meta, and Tesla (January 29th), as well as Apple (30th) at the spotlight, especially given the disruption caused by the DeepSeek V-3 release over the weekend.
The European Central Bank is widely expected to reduce for a fourth consecutive meeting its main policy rates by -0.25%, to 2.75% for the Deposit Facility Rate. Inflation appears on track to meet the medium-term target of 2% (2.4% in December, with January’s reading due on February 3rd) and economic activity remains subdued.
Euro area real GDP growth is expected at +0.1% qoq (+1.0% yoy) in Q4:2024 from +0.4% qoq (+0.9% yoy) in Q3:2024 (due on January 30th). Survey indicators suggest that euro area economic activity impetus was also rather anemic entering 2025, albeit with some improvement for PMIs in January.
In the event, the composite index was 50.2 from 49.6 in December, above consensus for 49.7, still close though to the expansion/contraction threshold of 50.0. Services remained in the driver’s seat (51.4 versus 46.1 for the manufacturing PMI). Consumer confidence also improved modestly in January, +0.3 pts to -14.2, albeit remaining relatively soft (average of -11.5 since 1999).
The euro gained ground following stronger-than-expected euro area PMIs and has increased by +2% to EUR/USD 1.045 since mid-January, given also that President Trump has refrained, so far, from immediately undertaking actions which could lead to trade disruptions.
The Federal Reserve is expected to stand pat on January 29th with the federal funds rate at a range of 4.25% - 4.50%, as inflation has shown stickiness. The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model, points to the core PCE inflation having remained steady at 2.8% yoy for a third consecutive month in December, in line with its 2024 average (actual data due on January 31st).
In addition, the US economic momentum remains solid. Real GDP growth is anticipated to have remained close to +3% in Q4:2024 (+2.7% qoq saar or +2.6% yoy) from +3.1% qoq saar (+2.7% yoy) in Q3:2024, with the official advance estimate due on January 30th.
US Technology shares declined significantly on Monday, as China-based AI company DeepSeek presented its DeepSeek V-3 LLM that seems to outperform other open-source models and achieve performance comparable to leading closed-source models (like GPT-4 and Claude-3.5-Sonnet) costing less and using less-powerful NVIDIA H800 chips -- a reduced version of Nvidia's H100 chips designed to comply with US chip export restrictions to China.
The Nasdaq index decreased by -3.1% (+25% yoy), albeit with sizeable deviation across single names. While low-cost though efficient large-language models could be negative for chip providers, they may well accelerate penetration across industries bringing down AI-related costs and increasing margins on AI-enabled products and services.
With the top 10 stocks by market capitalization accounting for circa 35% of the total index value and price to earnings multiples at elevated levels of 22.2x times 12-month forward earnings, the S&P500 looks vulnerable (-1.5% on Monday 28th).
Corporate earnings announcements will set the tone this week, with Microsoft, Meta, and Tesla (January 29th), as well as Apple (30th) at the spotlight, especially given the disruption caused by the DeepSeek V-3 release over the weekend.
The European Central Bank is widely expected to reduce for a fourth consecutive meeting its main policy rates by -0.25%, to 2.75% for the Deposit Facility Rate. Inflation appears on track to meet the medium-term target of 2% (2.4% in December, with January’s reading due on February 3rd) and economic activity remains subdued.
Euro area real GDP growth is expected at +0.1% qoq (+1.0% yoy) in Q4:2024 from +0.4% qoq (+0.9% yoy) in Q3:2024 (due on January 30th). Survey indicators suggest that euro area economic activity impetus was also rather anemic entering 2025, albeit with some improvement for PMIs in January.
In the event, the composite index was 50.2 from 49.6 in December, above consensus for 49.7, still close though to the expansion/contraction threshold of 50.0. Services remained in the driver’s seat (51.4 versus 46.1 for the manufacturing PMI). Consumer confidence also improved modestly in January, +0.3 pts to -14.2, albeit remaining relatively soft (average of -11.5 since 1999).
The euro gained ground following stronger-than-expected euro area PMIs and has increased by +2% to EUR/USD 1.045 since mid-January, given also that President Trump has refrained, so far, from immediately undertaking actions which could lead to trade disruptions.
The Federal Reserve is expected to stand pat on January 29th with the federal funds rate at a range of 4.25% - 4.50%, as inflation has shown stickiness. The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model, points to the core PCE inflation having remained steady at 2.8% yoy for a third consecutive month in December, in line with its 2024 average (actual data due on January 31st).
In addition, the US economic momentum remains solid. Real GDP growth is anticipated to have remained close to +3% in Q4:2024 (+2.7% qoq saar or +2.6% yoy) from +3.1% qoq saar (+2.7% yoy) in Q3:2024, with the official advance estimate due on January 30th.