EUROPEAN EQUITY UPDATE: Softer trade with tech hit on China's low-cost high-performing AI model

STOXX 600: -1.4%

• European bourses are almost entirely in the red amid the fallout from disappointing Chinese PMI data overnight, Trump's tariff announcement on Colombia, and with Chinese start-up DeepSeek threatening US dominance in the AI sector with a low-cost model on par with OpenAi's o1.


• The tech sector is particularly hit on the latter as DeepSeek claims to reduce training costs from USD 100mln to USD 5mln while matching or surpassing OpenAI's GPT-o1 and Anthropic's Claude AI on many tasks - and with a fraction of the GPUs. Furthermore, DeepSeek can run on gaming GPUs instead of expensive data centre hardware, which all-in-all poses a threat to NVIDIA’s high-margin GPU business.


• Dutch AEX (-1.4%) lags on the back of the broader decline in the tech, with ASML (-9.3%), and ASM International (-9.7%) plumbing the depths.


• The low-cost AI training also poses a threat to the energy demand expected to power the data centre hardware at a time of AI growth, with the likes of Siemens Energy (-17%) and Schneider Electric (-8%) also posting steep losses.


• UK's FTSE 100 (-0.3%) is more cushioned given its lack of exposure to the tech sector.

Sectors:

• Mixed with a clear defensive bias amid the broader risk aversion.


• Utilities, Food beverages & Tobacco, Telecoms, Optimised Personal Care Drug & Grocery, and Real Estate reside in the green and towards the top of the pack.


• Technology and Industrial Goods & Services underperform on the aforementioned DeepSeek story and its implications.


• Basic Resources and Energy are pressured by subdued prices post-Chinese PMIs and amid US President Trump's tariff rhetoric.

Individual Movers:

• Anglo American (-6%) falls after BHP reportedly cooled on returning with another bid for Anglo American, via FT citing sources; as the upside seen in Anglo American shares means the deal is now too expensive.


• Rolls-Royce (-2.9%) is lower as UK PM Starmer is expected to resist pressure from US President Trump to increase defence spending amid concerns surrounding public finances, according to The Times citing sources.


• Diageo (-0.6%) dismissed speculation about selling Guinness or its Moet Hennessy stake, Reuters reports. Guinness outperformed Diageo’s spirits segment, with strong sales growth, including its zero-alcohol variant. Updates are expected in Diageo’s interim results, due February 4th.


• Ryanair (+3.8%) rises after its Q3 Update (in EUR): Profit 149mln (exp. 60mln), Average Fares +1%. Q4 comp Y/Y is "very challenging". Boeing (BA) delays mean that the FY26 target has been revised to 206mln (prev. 210mln),

US Equity Futures: ES -1.9%, NQ -3.2%, RTY -0.9%, YM -0.9%

• Lower across the board with hefty losses seen in the NQ (-3.2%), mostly on the back of NVIDIA (-8.5% pre-market), after Chinese startup DeepSeek announced its low-cost model which matches or surpasses OpenAI's GPT-4 and Anthropic's Claude AI on many tasks - and with a fraction of the GPUs - with Microsoft (-3.9% pre-market) also lower as US AI dominance is questioned.


• Ahead this week, the FOMC on Wednesday will be the main event and is expected to hold rates at between 4.25-4.50% at its January 29th confab, according to all 103 economists surveyed by Reuters.


• Stateside earnings will also pick up this week with a deluge of mega-cap earnings with highlights including META, MSFT, TSLA, and AAPL.

27 Jan 2025 - 09:55- EquitiesData- Source: Newsquawk