Asian Markets Dip as China's AI Ambitions Weigh on Sentiment; Dollar Gains

TOKYO: U.S. stock futures and Asian stocks excluding China fell sharply on Monday as investors considered the impact of Chinese startup DeepSeek's introduction of a free, open-source AI model meant to compete with OpenAI's ChatGPT. At the same time, the dollar increased in value following U.S. President Donald Trump's warning to Colombia about possible retaliatory taxes and sanctions for rejecting military planes transporting deported migrants before a last-minute agreement. U.S. Nasdaq Composite futures dropped 2.3 per cent at 0634 GMT, while S&P 500 futures fell 1.3 per cent. Japan's Nikkei (.N225) opened a new tab and fell 0.9 per cent, reversing an earlier gain. New Zealand's equity benchmark (.NZ50) began a new session that dropped 0.2 per cent, while Singapore's Straits Times index (.STI) started a new session that decreased by 0.1 per cent.

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Simultaneously, Hong Kong's Hang Seng (.HSI) launched a new tab that surged by 1 per cent, while mainland blue chips (.CSI300) started a new tab that increased by 0.1 per cent, despite data revealing an unexpected decline in manufacturing this month. Pan-European STOXX 50 futures fell by 0.9 per cent. DeepSeek "has raised concerns about disruption in the technology sector, indicating that China can still make progress in the AI competition despite American limitations," Yeap Jun Rong, a strategist at IG, noted in a report. It "appears to raise certain worries about U.S. tech supremacy," placing "the high valuations of tech firms once again under examination," he stated. 

Dollar Strengthens Amid Tariff Concerns; Global Markets See Mixed Moves

In foreign exchange, the dollar rose 0.4 per cent against the Chinese yuan in offshore markets, and increased 0.4 per cent compared to the Australian and New Zealand dollars, as these antipodean currencies often serve as more liquid substitutes for China's currency owing to strong trade connections. The Mexican peso fell approximately 0.7 per cent, while the Canadian dollar declined by 0.2 per cent. The Colombian peso had not yet exchanged with the dollar but had climbed 3.4 per cent in the last three sessions. The euro slipped 0.2 per cent to $1.0461. 

Asian Stocks Fall; Dollar Gains Amid Uncertainty

Sterling slipped 0.1 per cent to $1.2457. The yen remained mostly stable at 156.13 against the dollar. China, Mexico, and Canada are anxiously awaiting as Trump last week designated Feb. 1 for new tariffs on the key trading partners of the United States. Nonetheless, Nomura strategist Naka Matsuzawa anticipates that the dollar's strength due to tariff concerns will be temporary. Matsuzawa stated, "Trump is adopting a more pragmatic and less confrontational approach to tariffs as a trend." "To sum it up: Trump opposes high tariffs due to his concerns about inflation," he stated. "The dollar will generally be weaker."

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Last week, Trump eased market worries by expressing his desire to prevent tariffs on China and indicated that a trade agreement could be achieved. The fluctuations across various asset classes mark the beginning of an important week for markets, during which the Federal Reserve and European Central Bank, among others, will determine monetary policy. Concurrently, numerous exchanges have prolonged their breaks this week for the Lunar New Year. Among them, South Korea and Taiwan had already closed on Monday. Markets in mainland China will remain closed starting Tuesday and will not reopen until February 5. Australia was shut down on Monday for Australia Day. At the same time, crude oil prices fell sharply after Trump reiterated his demand for OPEC to reduce oil prices on Friday. Brent crude futures fell 0.8 per cent to $77.85 per barrel, while U.S. West Texas Intermediate crude decreased 0.9 per cent to $74.00 per barrel. Gold dropped 0.7 percent to $2,753 an ounce.