Global Markets initially dipped in the week due to the introduction of DeepSeek. AI and tech stocks dragged. Markets subsequently recovered due to mixed corporate earnings reports. Three major central bank decisions were in line with market expectations. Equity markets were not affected by the Fed’s hawkish policy stance, which was priced in by the markets. U.S. manufacturing sector recorded growth for the first time in six months. 

South Korea’s former President Yoon was indicted for attempted insurrection by Korean courts. In the U.S., early rains provided much-needed relief from the weeks of destruction by wildfires in California. The U.S. and Colombia settled on a deal to regulate the repatriation of migrants to Colombia, without resorting to tariffs. The federal court temporarily blocked the Trump administration’s freeze on federal grants and loans till Monday.

Global Updates
  • The MSCI All Country World Index dipped marginally this week. The markets dipped early in the week as technology stocks were startled by the disruptive release of the Chinese artificial intelligence (AI) model DeepSeek, which has since become the most downloaded app on Apple’s app store. Alibaba also released its competing AI model Qwen2.5-Max.
  • Three major central banks chose to lower rates this week. The European Central Bank (ECB) cut its deposit rate by 25 basis points to 2.75%, to spur economic growth. ECB President Christine Lagarde that trade frictions could influence future decisions through their impact on productivity and inflation. The Swedish Riksbank cut its key interest rate by 25 bps to 2.25%, for the sixth time since May last year. The bank of Canada also lowered its policy rates by 25 bps to 3.0%
  • ASML reported net bookings of $7.38 billion in the fourth quarter, driven by AI demand. The company’s net sales of €2.6 billion and net income of €2.69 billion also came in higher than expected, in the quarter.
  • Pharmaceutical behemoth Novartis reported a 26% growth in its higher than expected  net income of $3.93 billion.
  • China’s equities had a mixed performance in the week. Equities were dampened by poor manufacturing data in January and slowdown in services. Investor optimism rose after industrial profits rose for the first time in six months in December. Regulators introduced measures to support the equity markets by initiatives raising investments of pension and other funds in equities and bonds. DeepSeek also raised investor optimism.
  • Japanese equities dipped this week following the raising of borrowing costs by the Bank of Japan and decline in technology stocks with the introduction of DeepSeek.
U.S. Equity
  • The S&P 500 & Nasdaq indices dragged this week while the Dow Jones index registered growth in U.S. equities. The release of DeepSeek-V3 and Qwen 2.5 briefly dragged on AI related technology stocks early in the week. Also, the Fed chose to keep its key policy rate steady citing sticky inflation, a resilient economy and the potential inflationary and macroeconomic effects of the suggested Trump tariffs. 
  • The U.S. S&P Manufacturing PMI for January came in at 50.1 due to an expansion in the manufacturing sector after six months of continued contraction. The U.S. Services PMI slowed to 52.8 in January.
  • The Bureau of Economic Analysis reported 4.2% growth in the fourth quarter of 2024 the fastest in two years notwithstanding the deceleration in GDP growth to 2.3%.
  • Meta reported 20% growth in fourth quarter revenues of $48.39 billion and a net income of $20.84 billion. The social media behemoth has raised its planned capital expenditures in AI to $60-$65 billion. 
  • Apple reported above expectations earnings of $36.33 billion for the fiscal first quarter. The company’s revenue rose by 4% to $124.3 billion, in line with expectations. The company reported lower sales in China due to increased competition. 
  • Intel reported lower than expected loss of $100 million and a $14.3 billion in revenue in the fourth quarter of 2024. Intel’s foundry division reported a higher than estimated revenue of $4.5 billion. The company is projecting its first quarter revenue in the $11.7 billion to $12.7 billion range.
  • Microsoft reported higher than expected fiscal second quarter revenue growth of 12% to $69.63 billion. The company’s earnings came in at $24.11 billion. On the other hand, Microsoft’s intelligent Cloud division reported lower than expected revenue of $25.54 billion.
  • IBM reported a higher-than-expected revenue of $17.55 billion and earnings of $3.92 per share in the fourth quarter, driven by the demand for AI technology and its Linux operating system.
  • United Parcel Service reported lower than expected sales and net income of $1.72 billion for the fourth quarter. UPS has reached an agreement with Amazon to lower delivery volumes by 50% by 2026, to prioritize on profit making services. The company also lowered its projected 2025 revenue to $89 billion.
  • ServiceNow reported growth in its fourth-quarter subscription revenue by 21% to $2.87 billion. The subscription revenue fell short of guidance despite a revenue of $2.96 billion in line with expectations and an adjusted EPS of $3.67 per share.
  • Cable and media giant Comcast reported a drop in its broadband subscriber base with 139,000 fewer subscribers in the fourth quarter. This shortfall offset the strong 2% growth in revenue to $31.92 billion and an EPS of $0.96.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index was in line this week.
  • The U.S. 10-year Treasury yield dipped to 4.54% and the yield on the 2-year note dipped to 4.23% over the week.
  • The U.S. Dollar Index jumped to 108.23 this week.

HCM-030624-063.GWS