Daily Market Outlook, January 27, 2025
Munnelly’s Macro Minute...
"DeepSeek The Disruptor”
On Monday, there was a decline in Nasdaq futures and a decrease in technology stocks in Japan, as investor confidence wavered following the introduction of a cost-effective Chinese artificial intelligence model, DeepSeek. This development sparked concerns about the profitability of AI and the industry's heavy reliance on advanced chips. Nasdaq 100 futures experienced a 2.85% drop, while S&P 500 futures also faced a decline. In Tokyo, shares of Advantest, a Nvidia supplier, took a drastic tumble of 8.5%. The emergence of DeepSeek, a startup offering a free assistant that utilizes affordable chips and requires less data, has injected a fresh element into the market. This new development challenges the prevailing notion that AI advancements would drive demand across the supply chain, impacting chip manufacturers and data centers. The disruption caused by DeepSeek's innovative approach has prompted a reevaluation of expectations surrounding the future of AI and its implications for the technology sector. The small startup in Hangzhou behind DeeepSeek remains shrouded in mystery, yet their assistant managed to surpass the competition, ChatGPT, and claim the top spot as the highest-rated free app on Apple's App Store in the United States on Monday. Notably, researchers at DeepSeek recently published a paper stating that their DeepSeek-V3 model, launched on January 10, utilized Nvidia's H800 chips for training, coming at a cost of under $6 million. It is worth mentioning that the H800 chips, while not the most advanced option available, were initially developed as a lower-capacity alternative to navigate sales restrictions imposed on China. Subsequently, they were prohibited due to U.S. sanctions.
Trump stirred up currency markets by imposing punitive tariffs and sanctions on Colombia for rejecting military planes carrying deported migrants. However, the situation quickly changed course when Bogota ultimately agreed to comply with all of Trump's demands. While Colombia's peso remained stable during Asian trading hours, Mexico's currency experienced a 1.2% drop, while Canada's loonie saw a 0.3% decline. Additionally, the offshore yuan depreciated by 0.4%.
In stark contrast to his forceful approach on immigration issues, Trump's stance towards China has been more tempered. Despite threats to impose 10% tariffs from February 1 onwards, this figure is notably lower than the 60% tariffs pledged during his campaign and even less than the 25% tariffs potentially facing Canada and Mexico on the same date. This shift in tactics perhaps reflects Trump's improved relationship with Xi Jinping, as he expressed a preference to avoid tariffs in his interactions with Beijing following a positive conversation with China's leader earlier in the month.
Regarding the potential impact of DeepSeek on technology stocks, the extent of its threat to U.S. competitors remains uncertain. However, market players appear inclined to sell off shares now and await a clearer evaluation of the situation. With four of the Magnificent Seven preparing to release their financial results this week—Apple, Microsoft, Meta Platforms (the parent company of Facebook), and Tesla—the rise of DeepSeek may increase interest in Big Tech's quarterly performance, profitability and AI expenditure. In addition, a number of central banks around the world are expected to make policy announcements in the next few days, including the Federal Reserve on Wednesday and the European Central Bank the day after.
Overnight Newswire Updates of Note
Bitcoin’s Sharp Descent Sparks $132M In Liquidations, Amid Volatility
German Ifo Morale Set To Continue Lower After Economy Weakens
WH: Colombia To Accept Deportees After Trump Tariff Standoff
Fixed Income Investors Seek Ways To Navigate A Trump Presidency
UK Banks Clash With BoE Over Rules On Loss-Absorbing Debt
Global Investors Unfazed By PBoC’s Warnings On Chinese Bonds
China's Jan Non-Manufacturing Activity Growth Slows
China's Industrial Profits Fall 3.3% In 2024, Third Year In The Red
BoJ May Revert To Fuzzy Communication After Fed-Style Clarity On Rates
Asia Tech Stocks Fall As DeepSeek Sows Doubts About AI Spending
Wall Street Bets Tesla’s 2025 Sales Will Miss Elon Musk’s Target
VW Mull Chinese Rivals Taking Over Excess Production Lines In Europe
Dollar Starts Week On Front Foot After Trump’s Colombia Tariffs
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0400 (1.2BLN), 1.0425-30 (895M), 1.0440-45 (1.8BLN)
1.0460 (1BLN), 1.0500-05 (1.1BLN)
USD/CHF: 0.9055 (346M)
EUR/GBP: 0.8350 (314M)
AUD/USD: 0.6200-15 (497M), 0.6300 (962M) , 0.6375 (501M)
EUR/AUD: 1.6700 (337M)
USD/CAD: 1.4275-85 (1BLN), 1.4450 (324M), 1.4550-60 (911M)
USD/JPY: 155.00 (1BLN), 155.25 (375M), 155.95-156.00 (2.1BLN)
EUR/JPY: 163.00 (1BLN), 166.00 (1BLN)
CFTC Data As Of 24/1/25
This summary provides an overview of the trading positions held by equity fund managers and speculators in various futures markets as of the reporting period ending January 21:
1. Currencies (Net Short Positions):**
- Euro: -62,486 contracts (significant bearish sentiment).
- Japanese Yen: -14,673 contracts (moderate bearish stance).
- Swiss Franc: -41,837 contracts (notable bearish sentiment).
- British Pound: -8,257 contracts (marginal bearish positioning).
2. Bitcoin (Net Long Position):**
- BTC: +739 contracts (mild bullish positioning in the futures market, reflecting growing optimism).
3. Equities (S&P 500 CME Futures):**
- Equity Fund Managers (Long): Increased net long position by +7,931 contracts to a total of +931,930 contracts, signaling continued optimism.
- Equity Fund Speculators (Short): Expanded net short position by +88,671 contracts to a total of -399,756 contracts, highlighting growing speculative bearish bets.
4. Treasuries (CBOT Futures):**
Long Positions:
- US Treasury Bonds (30-year): Net long position grew by +24,404 contracts to +24,456, reflecting a more bullish outlook on long-term bonds.
Short Positions:
- US Ultrabond (long-term Treasuries): Net short position decreased (trimmed) by -12,434 contracts to -229,988, indicating less bearish sentiment.
- 2-Year Treasury Futures: Net short position trimmed by -82,829 contracts to -1,174,377, showing a reduction in bearish sentiment on short-dated bonds.
- 5-Year Treasury Futures: Net short position increased by +18,570 contracts to -1,796,191, reflecting stronger bearish sentiment for mid-duration bonds.
- 10-Year Treasury Futures: Net short position increased by +12,310 contracts to -580,245, indicating growing bearish sentiment for this maturity segment.
Key Takeaways:
1. Currencies: Persistent bearish sentiment dominates, particularly for the euro and Swiss franc, with speculative shorts significantly outweighing longs.
2. Bitcoin: A small but positive net long position reflects a bullish tilt.
3. Equities:
- Fund managers are steadfastly bullish on the S&P 500, while speculators maintain a growing bearish stance, signaling a potential divergence of sentiment.
4. Treasuries:
- Long-duration bonds (30-year) saw increased long positions, indicating optimism in long-term fixed income.
- Shorter and mid-duration bonds (e.g., 5-year, 2-year) retain heavy net short positions, reflecting expectations of rising interest rates or bearish bond sentiment.
Overall, bullish interest in long bonds and equity fund managers’ sustained optimism, while speculative shorts dominate in currencies and some Treasury maturities.
Technical & Trade Views
SP500 Pivot 6040
Daily VWAP bearish
Weekly VWAP bullish
Seasonality suggests bullishness Into Feb 6th
Long above 6075 target 6165
Short Below 6045 target 5743
EURUSD Pivot 1.0435
Daily VWAP bullish
Weekly VWAP bullish
Seasonality suggests bearishness into March 30th
Above 1.0505 target 1.0634
Below 1.0435 target 0.9758
GBPUSD Pivot 1.2614
Daily VWAP bullish
Weekly VWAP bullish
Seasonality suggests bearishness into March 10th
Above 1.2685 target 1.2812
Below 1.2615 target 1.1878
USDJPY Pivot 153.77
Daily VWAP bearish
Weekly VWAP bearish
Seasonality suggests bearishness into jan 23rd
Above 1.5377 target 165.50
Below 152.41 target 150
XAUUSD Pivot 2692
Daily VWAP bullish
Weekly VWAP bullish
Seasonality suggests volatile bullishness into Feb 22nd
Above 2725 target 2762
Below 2692 target 2475
BTCUSD Pivot 101,960
Daily VWAP bearish
Weekly VWAP bullish
Seasonality suggests bullishness into Apr 9th
Above 104,020 target 110,000
Below 101,942 target 86,266
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!