02/03/2025

The week was marked by a combination of technological, economic and geopolitical factors that shook the financial markets and reinforced uncertainty surrounding the direction of global monetary policy.

On Monday, the technology sector led the declines in global stock markets, with the Nasdaq 100 dropping 3% and Nvidia experiencing a historic loss of market capitalization, seeing $600 billion wiped out in a single day. The reason behind this movement was the emergence of a Chinese startup, DeepSeek, whose artificial intelligence technology appears to compete with the most advanced models of OpenAI, but at a significantly lower cost. This news reconfigured the narrative around AI, a sector that until now seemed dominated by the great American technology companies, able to withstand the high training costs of these models. The possibility of a sharp drop in the entry barrier in this sector raises doubts about the sustainability of these companies' growth and puts the valuations that have justified their impressive stock market rally in recent months at risk.

The impact of DeepSeek was not limited to the market. Its irruption generated concern in Washington, as the restrictions imposed on China in accessing advanced chips have not prevented the Asian country from making significant progress in AI. If DeepSeek manages to maintain its competitiveness without access to U.S. technology, this could force the administration to further tighten export controls and seek new ways of slowing Chinese technological development. The response of the authorities will be crucial in the coming months, as any additional measure could aggravate the commercial tension and affect the global semiconductor industry.

While the market would account for the impact of technological disruption, the Federal Reserve reaffirmed its position that it is not in a hurry to cut interest rates, despite the moderation of inflation. Jerome Powell emphasized that the economy continues to show strength, which was confirmed by the release of the fourth-quarter GDP growth in the United States. The economy grew by 2.3% on an annualized quarterly basis, driven by strong consumer spending. With a resilient labour market and inflation that, although declining, is still above the target of 2%, the Fed considers that it is not prudent to make monetary policy more flexible. Nothing unusual, on the other hand, considering the 2.8% growth that the world's largest economy experienced in 2024.

The contrast with Europe is clear. While attention is still being paid to the United States, the European Central Bank opted for a more accommodative stance in the face of the weakness of growth. The eurozone closed the fourth quarter with zero growth, reflecting the stagnation of its main economies. Germany ended its second consecutive year with GDP declines, France recorded a slight contraction in quarterly growth, and economic activity in Italy showed barely any signs of expansion. Inflation, meanwhile, has continued to moderate, allowing the ECB to lower its interest rates again by 25 basis points. This trend of cuts could continue over the coming months, with the aim of avoiding a prolonged deceleration. The divergence between the Fed and the ECB has strengthened the dollar against the euro, a movement that, although it can raise import costs in the eurozone, also improves the competitiveness of its exports in international markets, a key factor for exporting economies such as Germany.

The monetary uncertainty was added to the trade policy, as the Trump administration announced the imposition of 25% tariffs on imports from Canada and Mexico from February 1. Chinese products, meanwhile, were loaded with another 10% tariff, reactivating trade tensions globally. While the measure is officially justified by concerns over immigration and national security, the market interprets it more as a negotiation tactic. However, uncertainty has increased since commercial retaliation by Canada and Mexico has already been announced, while China has promised unspecified countermeasures. Any movement that increases the likelihood of open trade war between the two largest economies in the world could unleash unpredictable consequences for global trade.

Obviously, this tension is moving to the financial markets at the start of the current week, as the threat of commercial escalation could generate disruptions in supply chains and affect inflation in the United States. In addition, the protectionist rhetoric penalises expectations of economic growth for 2025, which puts the narrative of soft economic landing at risk.

In short, the week made it clear that the investment environment remains complex and highly dynamic. The emergence of DeepSeek has added a new uncertainty factor in the technology sector, which could suffer additional pressure in certain business models if investors start to question their high valuations. The divergence between the Fed and the ECB poses challenges for fixed-income and foreign exchange markets, and Trump's trade policy remains a source of global volatility. In this context, investors must keep an eye on key economic data and the movements of central banks to adjust their strategies in an environment where uncertainty seems to be the only constant.