Asia's equity markets decline as US stock performance stabilizes amid China's advancements in artificial intelligence; the dollar strengthens.
U.S. stock futures and Asian markets outside of China took a hit on Monday as investors considered the impact of Chinese startup DeepSeek launching a free, open-source AI model to compete with OpenAI's ChatGPT.
At the same time, the dollar gained ground after U.S. President Donald Trump imposed retaliatory tariffs and sanctions on Colombia for rejecting military planes carrying deported migrants.
As of 0158 GMT, Nasdaq Composite futures dropped by 1.8%, while S&P 500 futures fell by 0.9%.
In Japan, the Nikkei index fell 0.3%, reversing earlier gains. New Zealand's stock index decreased by 0.6%, and Singapore's Straits Times index was down 0.2%.
Conversely, Hong Kong's Hang Seng index rose by 0.9%, and mainland blue-chip stocks increased by 0.2%, despite unexpected data showing a contraction in manufacturing this month.
According to Yeap Jun Rong, a strategist at IG, DeepSeek's entry into the market raises concerns about potential disruptions in the tech sector, indicating that China is still making progress in the AI competition despite U.S. restrictions. He noted that this development raises questions about U.S. tech dominance and puts the high valuations of tech companies back in the spotlight.
In the currency market, the dollar climbed 0.3% against the Chinese yuan in offshore trading, and it also rose 0.4% against the Australian dollar and 0.5% against the New Zealand dollar, as these currencies often serve as proxies for the yuan due to strong trade connections.
The Mexican peso fell by 1%, and the Canadian dollar dipped 0.3%, while the Colombian peso saw a 1.2% increase.
DOLLAR STRENGTH MAY BE TEMPORARY
China, Mexico, and Canada are on edge as Trump has set February 1 for potential new tariffs on the U.S.'s main trading partners.
However, Nomura strategist Naka Matsuzawa believes that the dollar's strength driven by tariff concerns may not last long. He mentioned that Trump seems to be adopting a more pragmatic and less confrontational approach to tariffs.
"Bottom line: Trump doesn't want big tariffs because he's worried about inflation," he said. "The dollar will be overall weaker."
Last week, Trump eased some worries in the market by expressing his desire to avoid tariffs on China and mentioned the possibility of striking a trade deal.
This week is crucial for the markets, with the Federal Reserve and the European Central Bank, among others, set to announce their monetary policies.
At the same time, several stock exchanges are taking extended breaks for the lunar new year. South Korea is closed on Monday and Tuesday, Taiwan is off all week, and mainland China will be closed from Tuesday until the following Wednesday. Australia is also taking a day off on Monday for Australia Day.
On another note, crude oil prices took a hit after Trump reiterated his request for OPEC to lower oil prices on Friday.
Brent crude futures fell by 1.2% to $77.60 a barrel, while U.S. West Texas Intermediate crude also dropped 1.2% to $73.78 a barrel.
Gold prices decreased by 0.6%, settling at $2,755.85 per ounce.
In the crypto world, bitcoin saw a decline of 3.5%, dropping to $101,415.12.