By Valentina Za, Gianluca Semeraro and Mathieu Rosemain

MILAN (Reuters) -Monte dei Paschi (MPS) CEO Luigi Lovaglio has pulled several all-nighters since arriving in Siena in early 2022, when Italy’s Treasury picked him out to revive the fortunes of the world’s oldest bank, five years after bailing it out.

Back in October 2022 he worked through the night to pull off a share sale, as MPS’s seventh cash call in 14 years sparked last-minute panic among banks underwriting it. MPS struggled to sell shares at 2 euros each back then.

MPS stock traded at 7 euros this week when Lovaglio and his finance chief Andrea Maffezzoni have emerged from two all-nighters that ended in them launching a 13.3 billion euro ($14 billion) all-share takeover bid for larger rival Mediobanca (OTC:MDIBY), Italy’s historic investment bank.

More than 10 billion euros in cash between 2017 and 2022 have allowed MPS to clean up its balance sheet in time for the bank to seize the profit boost from higher rates and jump on the consolidation train racing through the Italian sector.

MPS, which once threatened to spread contagion across the industry, is bidding for a bank that for decades held sway over Italy’s financial arena.

Lovaglio, 69, appeared conscious of his bold move and sought to strike a conciliatory tone on Friday.

“We don’t want to take any action that can in some way make weaker the powerful organisation that Mediobanca is,” he told analysts.

THE ODD COUPLE

Analysts fretted “the odd couple” of Mediobanca and MPS had in common little more than two significant shareholders: Delfin, the holding company of late billionaire Leonardo Del Vecchio, and fellow tycoon Francesco Gaetano Caltagirone. 

International funds have piled into MPS over the past two years as the Treasury cut its stake to 11.7% from 68%. The surprise bid sparked a sell-off, with MPS shares closing down 7%.

A person involved in the deal said advisers UBS and JPMorgan would set to work to explain the deal to investors and dispel concerns it could just reflect the shareholders’ secret agenda.

Delfin and Caltagirone also own stakes in Italian insurer Generali (BIT:GASI), and have for years accused Mediobanca CEO Alberto Nagel of relying excessively on income from Mediobanca’s stake in Generali.

Delfin and Caltagirone this week opposed Generali’s asset management tie-up with France’s Natixis Investment Managers. 

They found an ally in the government, which is concerned about savings shifting outside of Italy.

At the same time, the government’s resolve to help build a third big banking group in Italy to rival Intesa Sanpaolo (OTC:ISNPY) and UniCredit strengthened. 

Rome had thought it was headed in the right direction when in November it sold shares in MPS to Banco BPM, Italy’s third largest lender, as well as Delfin and Caltagirone. 

But late last year, UniCredit made a surprise bid for Banco BPM, thwarting Treasury’s efforts to encourage, with help from Delfin and Caltagirone, a tie-up between MPS and BPM.

SACRED

Lovaglio on Friday said he had presented Mediobanca as a merger option for MPS to Italy’s economy minister back in December 2022, alongside plans for more plain-vanilla tie-ups with peers.

Since then, it had become widely known that mid-sized rivals Banco BPM and BPER were potential candidates for MPS.

Only the recent emergence of Delfin and Caltagirone as major MPS investors put Mediobanca on the map of potential deals.

A person involved in the bid’s preparation said that Mediobanca was “such a sacred name” in Italian finance that it was natural to keep any tie-up ambitions secret until they could have a chance of success.

Rome on Friday threw its support behind MPS’s bid for Mediobanca, with two people close to the matter saying the Natixis-Generali combination may have played a role in cementing the government’s support for the plan.

A third person involved in the bid, however, said Lovaglio’s reasons for the deal were purely industrial and based on the need to find MPS a partner and how complementary the two businesses could be.    

“We’re besides ourselves,” a senior MPS employee at a Siena branch told Reuters on condition of anonymity. “This deal would be so perfect for our franchise.” 

So far, however, Mediobanca CEO Nagel has rebuffed attempts to open a dialogue with MPS and is preparing to fight against the offer, two people with knowledge of the matter said. 

Mediobanca has not commented on the bid.

($1 = 0.9541 euros)

Investing.com — Markets may be ignoring an important lesson of 2019, according to Goldman Sachs.

The Wall Street bank said in a note that the upcoming January Federal Open Market Committee (FOMC) meeting is unlikely to provide substantial new information. Its strategists believe that the statement may acknowledge stabilization in the labor market but is unlikely to offer clear guidance on the March meeting or the schedule for future rate adjustments.

“We will listen for hints about whether the further decline in inflation we expect in coming months could open the door to rate cuts, how strongly the leadership feels that the current level of the funds rate is still “meaningfully restrictive” and not an appropriate stopping point,” strategists said in a note.

Moreover, they also look forward to hearing about how the FOMC plans to navigate uncertainty around potential tariff hikes and their potential impact on prices.

Looking ahead to 2025, Goldman Sachs maintains an optimistic economic outlook, expecting progress toward the 2% inflation target, a modest recovery in labor market conditions following a softening in 2024, and GDP growth that exceeds consensus forecasts.

The bank expects the forthcoming inflation reports to show a continued decline in the year-on-year rate. Under the economic conditions forecasted for this year, Goldman Sachs believes that rate cuts would be reasonable, though not imperative.

The FOMC’s decisions, according to Goldman Sachs, will largely depend on how the Committee handles tariffs. The bank’s base case assumes that tariffs will only modestly boost inflation by 0.3 percentage points, which would not necessarily lead to an inflation increase and could leave room for rate reductions.

Still, FOMC members may be hesitant to lower rates due to uncertainties or concerns that their actions could be blamed for any inflationary impact from tariffs.

The Wall Street firm has reviewed transcripts and analyses from Fed meetings during the 2018-2019 trade war to draw insights into how the FOMC might respond to current conditions.

Firstly, the bank found that Fed staff and FOMC members previously had a relaxed view on the impact of tariffs on inflation, similar to Goldman Sachs’ current stance.

Moreover, the staff’s estimate of the GDP impact from the larger tariff proposals was significant and exceeded that of Goldman’s.

Also, although the FOMC eventually decided to cut rates, some members were doubtful that the effects of tariffs warranted a monetary policy response.

For the current year, Goldman Sachs forecasts two rate cuts of 25 basis points each in June and December, with an additional cut anticipated in 2026, based on the expectation of continued inflation decline and a robust labor market.

But the firm emphasizes that it’s difficult to predict the exact timing of these cuts, due to economic forecasts and uncertainties surrounding the FOMC’s approach to tariffs.

“We have more conviction, however, that market pricing as a probabilistic statement about possible Fed paths in coming years is too hawkish, and in particular that the market-implied probability of rate hikes is too high,” strategists added.

They feel skeptical that new administration policies will be inflationary enough to prompt the FOMC to consider raising rates from what it already deems a restrictive level.

“We worry that the lesson of 2019—when tariffs unsettled the equity market and contributed to the FOMC delivering “insurance cuts”—is being ignored,” the team concluded.

MILAN (Reuters) -Italian billionaire Francesco Gaetano Caltagirone has emerged as a leading player in the reshaping of Italy’s financial sector that is currently under way. 

BATTLES IN GENERALI AND MEDIOBANCA

Caltagirone last year expanded his investments in Italy’s financial sector and is now a key shareholder in bailed-out bank Monte dei Paschi di Siena (MPS) and fund manager Anima Holding.

On Friday MPS launched a surprise 13.3 billion euro all-share offer to buy merchant bank Mediobanca (OTC:MDIBY), in which over the last five years Caltagirone has become the second-biggest investor.

He is the third-largest shareholder in Italy’s top insurer Generali (BIT:GASI), with a 6.9% stake. Mediobanca is the top investor in Generali with a 13% stake. 

Caltagirone has repeatedly complained that Mediobanca exerts excessive influence on Generali through the board and a governance system which allows outgoing directors to name their successors. 

As a long-standing investor and board member at Generali, in 2022 he and late fellow billionaire Leonardo Del Vecchio sought in vain to oust CEO Philippe Donnet.

Prime Minister Giorgia Meloni’s conservative government has approved contested corporate governance changes championed by Caltagirone, and criticised by fund managers, which tighten the terms under which a company’s outgoing board can file a list of successors.

Donnet’s term comes up for renewal in the spring and he is expected to be put forward for another mandate backed by Mediobanca.    

WHAT IS HIS ROLE IN ITALIAN BANKING CONSOLIDATION?

Caltagirone’s holdings potentially pit him against UniCredit CEO Andrea Orcel who in November launched a buyout offer for Banco BPM, shortly after BPM had launched its own bid for Anima and bought a 5% stake in MPS.

The Treasury in Rome has long favoured combining BPM with MPS, which both partner with Anima, and building a core of long-term shareholders as it re-privatises the Siena-based bank it rescued in 2017, sources have said.

Before UniCredit upended Rome’s plans, Caltagirone, with a 5% stake in MPS, a 5.3% Anima holding, and 2% of BPM, looked set to become a significant shareholder in the combined entity.

Caltagirone in December named two representatives to the MPS board, including his son Alessandro.

WHO IS CALTAGIRONE?

An Italian entrepreneur with interests in construction, the cement industry, real estate, publishing and finance, Caltagirone was born in Rome on March 2, 1943 to a family of Sicilian descent.

According to Forbes’ 2024 wealth ranking, Caltagirone is Italy’s 10th richest person with an estimated wealth of 5.6 billion euros ($5.9 billion).

He owns Rome-based daily Il Messaggero, Italy’s eighth-largest newspaper by circulation, which is broadly supportive of Meloni’s government, and several regional newspapers. 

Despite his wealth and influence, Caltagirone keeps a relatively low profile and rarely gives media interviews.

He started out by reviving his late father’s building business alongside his two brothers and a cousin. He expanded in the 1980s with the acquisition of Vianini Group, a Milan-listed cement and infrastructure firm.

His cement company Cementir, listed on the Italian Stock Exchange, has a presence in 18 countries with 3,000 employees worldwide. It is the largest cement producer in Denmark, the third-largest in Belgium and among the main international grey cement operators in Turkey. 

Caltagirone has three children – Francesco, Alessandro and Azzurra – all involved in his operations, but no designated successors.        

($1 = 0.9529 euros)

Investing.com – US stock futures dropped on Monday as markets assessed the release of a Chinese firm’s new artificial intelligence model that may rival OpenAI’s ChatGPT, while the dollar rose in response to a tariff spat between President Donald Trump and Colombia. Later this week, the Federal Reserve is expected to keep interest rates unchanged, while results from mega-cap tech companies could further impact sentiment around the broader stock market. Elsewhere, activity in China’s manufacturing sector unexpectedly contracts in January.

1. Futures lower

US stock futures pointed lower on Monday as investors eyed the implications of the launch of Chinese start-up DeepSeek’s new artificial intelligence model that could compete with OpenAI’s ChatGPT.

Markerts were also gearing up for a major event-driven week featuring a crucial Federal Reserve interest rate decision and earnings from tech industry giants.

By 03:21 ET (08:21 GMT), the S&P 500 futures contract had shed 103 points or 1.7%, Nasdaq 100 futures had fallen by 647 points or 3.0%, and Dow futures had declined by 395 points or 0.9%.

The benchmark S&P 500 hit a record high last week. Traders were bolstered by hopes of easing inflation pressures in the US and eyeing a stance on international trade from the new Trump administration that has yet to include sweeping tariffs on friends and foes alike.

Trump has threatened to impose levies on several US trading partners, with Colombia being the most recent target after the South American country refused to accept military flights carrying deportees from the US. Washington backed down over the weekend, however, following Colombia’s decision to accept the aircraft.

Some economists have argued that Trump’s tariffs policies could revive price pressures, and subsequently persuade the Fed to roll out possible equity-friendly interest rate cuts at a slower pace this year. In January, the S&P 500 has advanced by around 4%, suggesting an early extension to a two-year string of increases in stocks.

The longevity of this rally may be tested this week when the Fed announces its policy decision and big-name tech firms publish quarterly reports — and potentially provide an update on their ambitions for artificial intelligence this year (more below).

2. Fed decision this week

Underpinning much of Wall Street’s sentiment is the Fed’s impending rate announcement on Wednesday following the central bank’s latest two-day meeting.

The Fed is widely tipped to keep borrowing costs unchanged, following a string of reductions late last year that the left the all-important benchmark rate at a range of 4.25% to 4.50%.

But investors will be keen for officials to give any sense of when they might resume cutting rates. The Fed’s easing cycle has come after a sequence of hikes designed to corral red-hot inflation, but price growth remains above the Fed’s 2% target.

Money markets are pricing in around 40 basis points, or roughly two more cuts, by the end of December, according to LSEG data cited by Reuters.

Yet a wild card faces the Fed in the form of President Trump. Policymakers have already flagged worries around uncertainty stemming from his tariff plans, while Trump himself has called on the Fed to slash rates.

3. Tech earnings loom large

On the corporate front, attention will likely center on quarterly results from a host of influential tech companies this week.

Instagram-owner Meta Platforms (NASDAQ:META), iPhone-maker Apple (NASDAQ:AAPL), software titan Microsoft (NASDAQ:MSFT) and Elon Musk-led electric carmaker Tesla (NASDAQ:TSLA) are all due to report.

Some analysts have suggested that, with the Fed projected to pause rate cuts for an unknown period of time, the strength of these earnings could grant renewed impetus to a long-running surge in equities on Wall Street.

Yet, with valuations already stretched, others have fretted that downbeat figures from these groups — all members of the so-called “Magnificent 7” cadre of mega-cap tech players — could dent optimism around an extension in the years-long rally.

Adding to the intrigue has been China’s DeepSeek, a start-up which purports to have built an AI model to rival that of OpenAI’s ChatGPT despite not having access to high-end chips and spending sums well below the vast amounts shelled out by many of the tech industry’s biggest names.

“The entire US equity market is resting on the backs of mega-cap tech stocks, which in turn are being propelled by AI optimism – while DeepSeek’s claims have attracted a fair amount of skepticism, the company could represent a fatal thread being pulled from the edifice of AI enthusiasm,” analysts at Vital Knowledge said in a note to clients.

4. Chinese factory activity shrinks

Chinese manufacturing sector activity unexpectedly shrank in January, official data showed on Monday, even as Beijing took steps to bolster local businesses through a raft of stimulus measures.

Growth in non-manufacturing activity also slowed sharply in January, as the outlook for domestic firms was clouded by the prospect of harsh US trade tariffs.

The January level of the manufacturing purchasing managers’ index (PMI) fell to 49.1 in January, compared to expectations that it would remain steady at the 50.1 logged in December. A reading below 50 indicates contraction.

Non-manufacturing PMI — which includes both the services and construction industries — slid to 50.2, lower than December’s mark of 52.2. China’s composite PMI came in at 50.1, below projections of 52.1 and 52.2 in the prior month.

In a note to clients, analysts at Capital Economics said that while the PMIs suggest China’s economy lost some momentum in January, “the slowdown at the start of the year will probably prove temporary, as fiscal stimulus should support economic growth in the near-term”.

5. Oil dips

Oil prices fell Monday, with traders assessing President Trump’s call last week for the Organization of the Petroleum Exporting Countries to lower crude prices.

By 03:25 ET, the US crude futures (WTI) dropped 0.4% to $74.33 a barrel, while the Brent contract declined by 0.5% to $77.19 per barrel.

The crude market was nursing steep losses from last week after Trump declared a national emergency and called for a sharp increase in US energy output, while also urging the OPEC producer group to bring down crude prices.

Oil markets were also hit by the weak PMI data from China, the world’s top oil importer.

(Reuters) – European shares slid on Monday as the technology sector joined the retreat in other markets after China’s upgraded low-cost, low-power artificial intelligence (AI) model sparked worries about the profits of rivals and the need for costly tech.

The pan-European STOXX 600 was down 0.7% of 0815 GMT. U.S. Nasdaq Composite futures tumbled 3.1%, while S&P 500 futures sank 1%.

Startup DeepSeek has rolled out a free assistant that it says uses lower-cost chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centres.

The news rattled European tech stocks as well, which slid 4.5%. Chip equipment maker ASML (AS:ASML) slid 8.7%.

Siemens (ETR:SIEGn) Energy, which provides electric hardware for AI infrastructure, sank 17.7%, while AI darling Schneider Electric (EPA:SCHN) dropped 8.1%.

The week ahead is packed with key interest rate decisions by central banks around the globe, with the Federal Reserve and European Central Bank policy verdicts in particular focus.

Fourth-quarter gross domestic product numbers for the euro zone and Germany, along with inflation data for major European economies, are also part of a data-loaded week.

Among other stocks, Ryanair added 2.1% after the low-cost carrier posted a bigger-than-expected quarterly profit.

British American Tobacco (NYSE:BTI) was up 4% after the Donald Trump administration withdrew plans to ban menthol cigarettes.

By Libby George

LONDON (Reuters) – The new era of unpredictability, marked by tariff threats and rising global tensions, is prompting emerging market investors to look for shelter in frontier markets that are relatively safe from U.S. President Donald Trump’s trade policy shifts.

Trump’s return to the White House put Mexico’s peso on a roller coaster, further drained enthusiasm for foreign investing in China and cooled hopes of a golden era for emerging markets.

So-called frontier markets are the riskiest in EM and often smaller developing economies in Africa, Eastern Europe, Asia and even Latin America. They aren’t exactly a safe be but investors say they are strong investment destinations this year because they are not in Trump’s firing line for tariffs and other policy shifts.

Economies like Serbia have the added allure of sturdy growth, while for Ghana, Zambia and Sri Lanka, emergence from debt default allows them to focus on reforms and growth.

“The frontier markets are likely to be more insulated than the others, because I don’t think that countries like Nigeria or Sri Lanka or Paraguay … will be a target anytime soon for this administration,” said Thierry Larose, an emerging market portfolio manager with Vontobel. 

“They have their own idiosyncratic risk, but they’re pretty much immune to the risk-on risk-off affecting the mainstream emerging markets,” he said, calling them an “extremely powerful engine of diversification”.

For Anton Hauser, senior fund manager with Erste Asset Management, assets such as Serbian local bonds are good bets to capture strengthening economic growth in Eastern Europe. 

HIGH YIELD AND HIGH PERFORMANCE?

A riskier global climate often sends investors rushing for safe-haven assets such as U.S. Treasuries, gold or German government bonds. 

The COVID-19 crisis and the fallout from Russia’s invasion of Ukraine saw investors ditch frontier markets in their flight to safety; several of them tumbled into sovereign default. 

But the backdrop might be different with the famously mercurial Trump’s second presidency. 

Some of the riskiest debt bets – such as Argentine, Lebanese, Ukrainian and Ecuadorean international bonds – outperformed spectacularly last year.

Many expect similarly idiosyncratic stories – driven chiefly by local dynamics – to drive returns again over 2025.

“High yield has also done generally pretty well – it’s been doing well for a few months now,” said Nick Eisinger, co-head of emerging markets with Vanguard, adding: “We still think those are interesting parts of the market.”  

Like Larose, he cited frontier markets, notably in Africa, as “unlikely to be systematically influenced by geopolitical or global macro factors”.

Investors cited multiple other countries – many of which have struggled to attract foreign cash – including Egypt, Nigeria and the Dominican Republic – as good targets.

Zambia, Ghana and Sri Lanka, which recently emerged from debt restructuring deals, are also attractive bets this year, they said.

But there are some bright spots among larger, non-frontier emerging economies too, such as Turkey and South Africa.

Turkey has become a popular play for foreign cash since it returned to orthodox fiscal policy in 2023, and recently embarked on a rate-cutting cycle and could benefit from reconstruction in Syria and Ukraine.

South Africa, investors said, is less reliant on exporting to the United States, could benefit from falling oil prices and has a mix of commodity exports that could help it weather geopolitical turmoil.

“The few trades that… have surprised the last few weeks have been low beta, low correlation trades with the dollar,” said Marek Drimal, lead CEEMEA strategist with Societe Generale (OTC:SCGLY). “Turkey is a prime example. They’ve been doing quite alright.”

Drimal also cited bets on foreign exchange forwards in Egypt and treasury bills in Kenya.     

But it’s not a free pass for all emerging economies. 

JPMorgan downgraded its recommendation on Panama’s bonds after Trump ramped up his threat this week to “take back” the Panama canal.

Silver-lining stories from the previous Trump administration might be less lucky this time, too, especially those who benefited from diverted Chinese trade. 

“Mexico, Vietnam, Malaysia… will be more targeted,” said Magda Branet, head of emerging markets with AXA Investment Managers. “Trump will look to close these loopholes.”

Investing.com– U.S. President Donald Trump’s proposed trade tariffs against Colombia are now on hold after Bogota agreed to accept migrants deported from the U.S., the Associated Press reported on Sunday. 

Trump had threatened to impose 25% tariffs on all Colombian imports after the country refused two U.S. military planes carrying migrants from landing in the country. 

The Colombian government agreed to Trump’s terms of accepting illegal immigrants, and Trump’s proposed tariffs were now on hold, the AP reported, citing a statement from White House Press Secretary Karoline Leavitt.  

The U.S. President had threatened to impose a 25% duty on all Colombian imports, which was set to increase to 50% within a week. Colombia’s biggest exports to the U.S. are oil, coffee, gold, and flowers. 

By Yoruk Bahceli and Stefano Rebaudo

LONDON (Reuters) – The European Central Bank meets on Thursday for the first time since Donald Trump returned to office, leaving U.S. tariff threats looming over the euro zone’s sluggish economy and potentially complicating the economic outlook.

Traders reckon further rate cuts are a done deal, so the question is whether the ECB drops any new hints on the path ahead.

“They expect President (Christine) Lagarde to say the door to further rate cuts is open,” said Bruno Cavalier, chief economist at Oddo.

Here are five key questions for markets:

1/ What will the ECB do on Thursday?

Most likely, cut the key deposit rate by another 25 basis points to 2.75%.

Markets fully price the move and the ECB removed language from its guidance in December that had pledged to keep rates restrictive.

“There has been no change to the outlook since December,” said Pictet Wealth Management’s head of macroeconomic research Frederik Ducrozet.

2/ How does Trump’s return change ECB thinking on tariff risks?

It doesn’t so far, economists reckon.

U.S. President Trump did not impose day-one tariffs and said the U.S. is not ready for universal ones. However, he put Canada, Mexico and China in the firing line and complained about the terms of trade with the European Union.

Trump told the World Economic Forum in Davos via video last week that other economies will face tariffs if they make their products anywhere but the U.S.

While some analysts take comfort in the initial approach being more measured than expected, that could change.

For the ECB, it’s all about how tariffs impact euro zone inflation, whether directly or through their impact on demand.

Lagarde said last week the bank is not “overly concerned” about Trump’s policies exporting inflation to Europe — comments ABN AMRO (AS:ABNd) economists took to signal the ECB would see tariffs as mainly being negative for growth.

3/ How far does the ECB need to cut rates?

Traders expect almost four rate cuts from the ECB this year and some policymakers have explicitly agreed, pointing to rates falling towards 2%.

That would put rates within estimates of the so-called neutral rate, which neither restricts nor accommodates growth.

But some hawks sound more cautious on the pace, with top hawk Isabel Schnabel recently warning that the bank needs to have a “deep think” on how far and quickly to cut.

Once rates reach 2.5% “they will have to think a bit harder to decide where to go”, said PIMCO portfolio manager Konstantin Veit.

But given a weak economy, the risk is skewed towards rates falling to 1.75%, he added.

Lagarde said last week the neutral level was anywhere between 1.75% and 2.25%.

4/ How worrying is the uptick in inflation for the ECB?

Not very, economists reckon.

Inflation rose to the highest since July at 2.4% in December, driven by higher energy prices and costs in services, where inflation isn’t budging from 4%.

Yet the rise is in line with the bank’s expectations and chief economist Philip Lane is confident wage growth is slowing and will quickly pull services inflation lower.

He has also warned keeping rates too high for too long could push inflation below target.

While the ECB only targets inflation, as it nears 2%, “it’s not as simple as just being a single mandate because after all, growth is important if you want to see where inflation is going to go,” said Danske Bank (CSE:DANSKE) chief analyst Piet Christiansen.

5/ What if the Fed stops cutting rates?

The ECB could slow its cuts, but it depends on the reason.

Traders’ Fed rate cut bets have swung in January given uncertainty around the U.S. inflation outlook.

BofA and BNP Paribas (OTC:BNPQY) expect the Fed to stay on hold this year.

“If they don’t cut because the economy is strong in the U.S., it’s also good news for Europe…. the ECB could actually be tempted to cut a little bit less,” Pictet’s Ducrozet said.

“If they don’t cut because of a stagflation kind of scenario, then it’s a different story and I don’t think it makes a big difference for the ECB,” he said, noting a fall in the euro to parity, from almost $1.05 at present, would not be a big focus.

A look at the day ahead in European and global markets from Kevin Buckland

For two years, investors and analysts have pondered what – if anything – could take some of the steam out of the AI stocks rally. China may have just come up with the answer.

Futures in the tech-centric U.S. Nasdaq Composite index had tumbled 1.8% by around midday Monday in Asia, as investors weighed the implications of Chinese startup DeepSeek’s release of a rival to ChatGPT that it claims is cheaper and may on some metrics be better. Pan-European STOXX 50 futures slipped half a percent.

Trump was also roiling currency markets again at the start of the week, hitting Colombia with punitive levies and sanctions for turning away military planes carrying deported migrants. Just hours later, Washington was announcing an about-face from Bogota, which agreed to all of Trump’s terms.

Colombia’s peso hadn’t traded in Asian time but Mexico’s currency slid as much as 1.2% and Canada’s loonie weakened 0.3%. The offshore yuan eased 0.4%.

Compared with Trump’s strong-arm tactics over immigration, however, his approach to China so far has been more nuanced. Although he has threatened 10% tariffs from Feb. 1, that was a far cry from the 60% duties he pledged on the campaign trail and less even than the 25% levies that neighbours Canada and Mexico may face on the same date.

Maybe it’s the rekindled bromance with Xi Jinping: Trump went so far as to say he’d rather not resort to tariffs in dealing with Beijing, after what he called a “good, friendly conversation” with China’s leader by phone earlier this month.

As for DeepSeek’s roiling of tech share prices, the jury is still out on how much of a threat it may actually pose to its U.S. rivals, but market players look like they’d rather sell first and hear the verdict later.

Ironically, it’s a challenger of America’s own making, after years of chip-related sanctions and now renewed tariff threats under President Donald Trump, which encouraged a self-sufficiency push by Beijing that is now bearing fruit.

Trump has made no mention of the potential threat to his own half-trillion-dollar AI initiative but traders may be keeping a close eye on his Truth Social account.

The DeepSeek news could also focus more attention than usual on Big Tech’s quarterly health check this week, with four of the so-called Magnificent Seven reporting financial results: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Facebook-owner Meta Platforms (NASDAQ:META) and Tesla (NASDAQ:TSLA).

Also this week, a host of central banks globally will set policy, including the Fed on Wednesday and the ECB a day later.

For Asia, though, a lot of this happens in the vacuum of lunar new year holidays. Mainland Chinese bourses will be closed from tomorrow through Tuesday of next week.

Other developments that could influence markets on Monday:

-Germany ifo surveys (Jan)

-UK Nationwide house prices (Jan)

-ECB President Lagarde speaks at Holocaust remembrance event in Frankfurt

(By Kevin Buckland; Editing by Edmund Klamann)

BEIJING (Reuters) – Chinese startup DeepSeek’s AI Assistant on Monday overtook rival ChatGPT to become the top-rated free application available on Apple (NASDAQ:AAPL)’s App Store in the United States.

Powered by the DeepSeek-V3 model, which its creators say “tops the leaderboard among open-source models and rivals the most advanced closed-source models globally”, the artificial intelligence application has surged in popularity among U.S. users since it was released on Jan. 10, according to app data research firm Sensor Tower.

The milestone highlights how DeepSeek has left a deep impression on Silicon Valley, upending widely held views about U.S. primacy in AI and the effectiveness of Washington’s export controls targeting China’s advanced chip and AI capabilities.

AI models from ChatGPT to DeepSeek require advanced chips to power their training. The Biden administration has since 2021 widened the scope of bans designed to stop these chips from being exported to China and used to train Chinese firms’ AI models.

However, DeepSeek researchers wrote in a paper last month that the DeepSeek-V3 used Nvidia (NASDAQ:NVDA)’s H800 chips for training, spending less than $6 million.

Although this detail has since been disputed, the claim that the chips used were less powerful than the most advanced Nvidia products Washington has sought to keep out of China, as well as the relatively cheap training costs, has prompted U.S. tech executives to question the effectiveness of tech export controls.

Little is known about the company behind DeepSeek, a small Hangzhou-based startup founded in 2023, when search engine giant Baidu (NASDAQ:BIDU) released the first Chinese AI large-language model.

Since then, dozens of Chinese tech companies large and small have released their own AI models, but DeepSeek is the first to be praised by the U.S. tech industry as matching or even surpassing the performance of cutting-edge U.S. models.