China’s AI neophyte rocks Wall St ahead of Fed, mega-tech earnings

The US tech juggernaut suffered a sharp setback on Monday, setting global markets up for a volatile ride this week, with mega-cap earnings on deck, the Fed’s meeting, and lingering uncertainty over US President Donald Trump’s trade policies.

US stocks tumbled on Monday, led by tech shares, as the growing buzz around Chinese startup DeepSeek’s low-cost AI model sparked concerns about the sector’s high valuations.

Selling on Asian exchanges outside China spilled over into US stock futures. The S&P 500 dropped about 1.5% after hitting an all-time high last week and the Nasdaq swooned more than 3%, while Nvidia, whose chips are the top choice for powering AI applications, dropped about 17%.

Investors meanwhile flocked to US Treasuries in a flight to safety, pushing benchmark 10-year yields down 10 basis points to 4.53%. The dollar index fell 0.1% to its lowest since Dec. 18.

Foreign competition to the US dominance in artificial intelligence has sparked broader concerns over valuations in US equities, where Big Tech shares have led stocks higher over the past couple of years.

This means all eyes will be on a wave of earnings reports this week, with megacap tech giants Tesla, Meta, Microsoft, and Apple set to take center stage. Investors will be hunting for clues on when the hefty bets on artificial intelligence will begin to pay off in a meaningful way.

Meanwhile US trade policies remain a key market theme.

China, Mexico, and Canada remain on edge as Trump last week marked Feb. 1 as the date for imposing additional tariffs on the major US trading partners.

And while so far he has refrained from implementing broad trade levies, on Sunday Trump threatened Colombia with tariffs and sanctions to punish it for refusing to accept military flights carrying deportees. Colombia later said it would accept the military aircraft and the US sanctions threat was put on hold, but investors got a taste of how Trump’s trade decisions could surprise markets.

Later this week, the Fed’s first meeting of 2025 will be a major focus for investors trying to decipher how Trump’s economic policies will impact the US central bank’s views on growth and inflation.

US policymakers are expected to leave interest rates unchanged at their rate-setting meeting, which starts on Tuesday and ends on Wednesday, but Trump may complicate the Fed’s job going forward, after he said last week he wants the Fed to lower borrowing costs.

The European Central Bank meanwhile will meet on Thursday for the first time since Trump returned to office. It is largely expected to cut the key deposit rate by another 25 basis points, but investors will look for hints on the path ahead as the threat of US tariffs clouds the European economic outlook.

The economic data calendar in Asia is light on Tuesday, and many bourses have extended holidays this week for the Lunar New Year. Markets in mainland China are shut from Tuesday and do not reopen until Feb. 5, while Singapore’s financial markets will be closed for a half day on Tuesday and closed for all of Wednesday and Thursday, for national holidays.

Here are key developments that could provide more direction to markets on Tuesday:

– Japan service PPI (Dec)

– Australia Business Confidence Index

– US durable goods (Dec)

– US 7-year Treasury auction

(Reporting by Davide Barbuscia; Editing by Alden Bentley and Deepa Babington)