AI fears spark early morning volatility in markets

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Published Date 1/27/2025

Last week there was no movement in rates, not the case this morning with the 10 year note trading down 12 bps from Friday in over night activity. Stock futures blew up, the NASDAQ at 6 am ET down 875 points, the DJIA down over 400 points. A Chinese start up, DeepSeek rocking AI stocks, claiming the cost of developing AI to be much less expensive that had been thought. Last week, the company released a reasoning model that also reportedly outperformed OpenAI’s latest in many third-party tests. “DeepSeek clearly doesn’t have access to as much compute as U.S. hyperscalers and somehow managed to develop a model that appears highly competitive,” Srini Pajjuri, semiconductor analyst at Raymond James, said in a note this morning.

Investors running to the safe havens of US treasuries as tech stocks crumble on the potential significant news from DeepSeek that implies much quicker and lower costs for the development of AI. Tech stocks are on track to lose $1.2 trillion in valuations today.

At 9:30 am the DJIA opened -188 after trading as low as 400, NASDAQ opened -609 after trading -775, S&P opened -109 from a low of 150. The 10 year note at 9:30 am -9 bps to 4.54%, the low 4.50%. FNMA 6.0 30 year coupon at 9:30 am +25 bps from Friday’s close and +35 bps from 9:30 am Friday morning.

At 10 am December new home sales were reported at 698K much better than 672K expected; we will have details this afternoon.

The announcement from DeepSeek has rattled markets, although there is no reason to believe stock indexes are headed substantially lower.

This Week’s Economic Calendar:

Monday,

8:30 am Chicago Fed National activity Index (+0.15 from -0.1)

10 am December new home sales (expected 672K from 664K, as reported 698K)

11:30 am $69B 2 year note auction

1 pm $70B 5 year note auction

Tuesday,

8:30 am December durable goods orders (expected +0.8%, ex transportation orders +0.4%, core capital goods +0.3%)

9 am November Case/Shiller home prices (+0.3%, year/year +4.1% from 4.2% in Oct)

10 am January consumer confidence index (106.3 from 104.7)

1 pm $44B 7 year note auction

Wednesday.

2 pm FOMC policy statement

2:30 pm Jerome Powell’s press conference

Thursday,

8:30 am weekly jobless claims (+224K from +223K)

Q4 advance GDP (+2.7% from 3.1% in Q3)

10 am December pending home sales (+0.4% from +2.2% in November)

Friday,

8:30 am December PCE ( month/month +0.3% from +0.1%, year/year +2.6% from +2.8%; month/month core +0.2% from +0.1%, year/year +2.8% unchanged from November)

December personal income and spending (income +0.4%, spending +0.5%)

Q4 employment cost index (+0.9% from +0.8% in Q3)

9:45 am January Chicago purchasing managers index (40.0 from 36.9)

Source: TBWS

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