Volatility, AI Disruptions and Tariff Risk Shape Global Market Trends

Nasdaq Composite bore the brunt of market volatility as investors reacted to DeepSeek's groundbreaking AI model. The Chinese firm's innovation - requiring less processing power and energy than leading competitors sparked fears of heightened global competition in the AI space 

The past two weeks have been a rollercoaster ride for global stock markets, with U.S. equities experiencing sharp fluctuations. While the Dow Jones Industrial Average managed a modest gain for the third consecutive week, the tech-heavy Nasdaq Composite faced significant declines. A major catalyst for the downturn was the emergence of DeepSeek, a Chinese artificial intelligence (AI) company that introduced a new energy-efficient, open-source large language model. The development sent shockwaves through the AI sector, leading to a steep sell-off in major tech stocks, mainly NVIDIA, which tumbled nearly 17 per cent last week. Beyond AI concerns, earnings season remained in focus, with around 40 per cent of the S&P 500's market capitalisation reporting results. Several major corporations, including Meta Platforms and Apple, exceeded expectations, providing some relief to markets and helping indexes recover from earlier losses. 

Tariff Risks Resurface Amid Political Uncertainty
Trade policy also re-entered the spotlight, with the Trump administration reaffirming its commitment to aggressive tariffs. The president announced a 25 per cent tariff on imports from Mexico and Canada, which came into effect on February 1, 2025, and hinted at an additional 10 per cent duty on Chinese goods. These developments contrasted with earlier statements that had suggested a more lenient trade stance, contributing to market uncertainty. 

Federal Reserve Holds Rates Steady
The Federal Reserve wrapped up its first policy meeting of 2025 with a widely expected decision to maintain interest rates in the 4.25–4.50 per cent range. Chair Jerome Powell emphasised that the central bank sees no urgency in adjusting policy unless inflation shows significant progress or labour market conditions deteriorate. The Fed acknowledged solid economic growth and a resilient job market but flagged persistent inflationary pressures. 

European Markets
European equities performed well in the past fortnight, with the STOXX Europe 600 Index climbing 1.78 per cent to a record high. Positive earnings reports and the European Central Bank's decision to lower interest rates buoyed investor sentiment. Germany's DAX rose 1.58 per cent, reaching a new peak last week, while Italy's FTSE MIB and France's CAC 40 also posted 

gains. Meanwhile, the UK's FTSE 100 jumped 2.02 per cent, helped by a weaker pound, which boosted multinational corporations' global revenues. 

Mixed Performance by the Japanese Market
Japanese markets saw diverging trends in the past fortnight, with the Nikkei 225 slipping 0.90 per cent while the broader TOPIX Index advanced 1.37 per cent. The emergence of DeepSeek as a formidable AI competitor rattled investor confidence, leading to a sell-off in major Japanese chip stocks. 

Market Activity Slows in China Ahead of Lunar New Year
Chinese equities edged lower during a shortened trading week. The CSI 300 and Shanghai Composite Indexes declined on the last trading day before the Lunar New Year holiday. Markets in mainland China remained closed till the first week of February, with trading set to resume on February 5. Meanwhile, Hong Kong's Hang Seng Index saw slight gains in early-week sessions before closing for the holiday break. 

Conclusion
The past fortnight underscored the interconnected nature of global markets as AI advancements, economic policies, and central bank decisions shaped investor sentiment. While the U.S. stock market grappled with volatility from AI competition and tariff threats, European markets thrived on strong earnings and monetary easing. Japan faced challenges from AI-driven sell-offs in Asia, while China's markets entered a quiet phase due to holiday closures. Looking ahead, investors will closely monitor corporate earnings, geopolitical developments, and monetary policy signals.