HIGHLIGHTS
Equities recovered most of the early week losses after the significant drop in AI sector due to the pressure from DeepSeek. Earnings remain strong, around 75% of the reported companies in S&P500 beat expectations.
Tariff: Markets are focused on the announcement of 25% tariffs on Canada and Mexico, and the implementation of the tariff including date, targeted imports, and change of the tariff rate over time. It is also one of the reasons that boosted gold price to all-time high as investors need a safe haven.
AI: The cost of China-based AI platform DeepSeek is low, putting a lot of pressure on AI sector in US. Nvidia dropped 17% after the news but has since mostly recovered. Markets are still optimistic that the lower development cost of AI could lower the entry barriers and be deflationary.
Global Rate: Fed kept the rate unchanged as expected, supported by the strong economic data and job market. European Central Bank cut its rates by 25bps due to the stalling economy. Bank of Canada also cut its rates by 25bps amid the uncertain economic backdrop and potential US tariffs.
MARKETS
19,627.44 | -1.64% | |
S&P 500 | 6,040.53 | -1.00% |
Dow | 44,544.66 | +0.27% |
10-Year | 4.57% | -6bps |
Brent | 76.40 | -1.39% |
DXY | 108.50 | +0.97% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: AI adoption in the US increased from 5.9% to 6.3% this quarter, and is expected to hit 9.2% mid-2025. It could potentially boost AI monetization and narrow down the gap between AI revenue and capex for big tech firms.
Standard Chartered: In the near term, it is likely to be more volatile with Tump’s tariff threats. Investors are recommended to diversify, with more allocation in Asian equities especially if the AI development in China revives productivity and market sentiment.
Fixed Income
Morgan Stanley: Remain overweight fixed income. Entry points of 10Y treasury above 4.5%. are attractive. Consensus of 10Y treasury positioning is light with only 30% of market participants prefer to go long. It is interesting as the current consensus backdrop calls for a soft-landing with cool inflation that should be favorable to bond.
Standard Chartered: Powell’s comment of not being in a hurry to adjust policy stance was supposed to trigger surge in yields, but it did not. 10Y treasury yields still stay around 4.5%. We expect the potential tariff-related bounce in yields to be capped at 5%.
Economy
UBS: Inflation looks to ease closer toward the target rate of 2% by mid-2025. Recent monthly CPI data is favorable, with shelter remaining strong but should cool down because of the lagged effect of slowing rental increases.
HSBC: US tariffs will pose additional challenges for the eurozone. Increasing US treasury yields tend to translate into higher UK gilt yields, implying higher borrowing costs in the UK. Because of the promise of no further tax rises this year, UK Chancellor is more likely to cut spending, which hurt economic growth.
KNOWLEDGE TRANSFER
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DISCLOSURE
This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.
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