European and Asian shares fell sharply on Monday as investors reacted to Chinese startup DeepSeek’s launch of a free, open-source artificial intelligence model positioned as a competitor to OpenAI’s ChatGPT.
The dollar experienced a dip amid continued uncertainty over broad U.S. import tariffs, even as President Donald Trump threatened Colombia with punitive levies for its initial refusal to accept deportee flights.
DeepSeek’s AI Launch Shakes Markets
DeepSeek’s new AI assistant, designed to operate on lower-cost chips and less data, challenges the market’s expectations for high demand across the AI supply chain, including chipmakers and data centers.
The pan-European STOXX 600 index fell 0.7%, with the technology sector leading the decline. The Euro STOXX 50 index dropped 1.4% in early trading, while the STOXX Europe 600 technology index fell 4.6%, marking its biggest one-day drop since mid-October.
In the U.S., futures for the Nasdaq Composite and S&P 500 dropped 3.1% and 2%, respectively. Nvidia, a major player in AI hardware, saw its shares fall by over 7% in pre-market trading.
“DeepSeek and China are signaling that they can deliver what ChatGPT offers at a fraction of the cost,” said George Lagarias, investment strategist at Forvis Mazars. “This challenges the narrative driving the market and prompts investors to take some profits.”
Global Market Reactions
Across Asia, Japan’s Nikkei dropped 0.9%, reversing early gains, while New Zealand’s equity benchmark slipped 0.2% and Singapore’s Straits Times Index eased 0.1%.
In contrast, Hong Kong’s Hang Seng index rallied 0.7%, though Chinese mainland blue-chip stocks dipped 0.4% following data that revealed an unexpected contraction in manufacturing.
Currency Movements
The dollar weakened as President Trump refrained from imposing broad-based import tariffs, though tensions remain high. Trump last week earmarked February 1 for potential tariffs on China, Mexico, and Canada.
The dollar rose 1% against the Mexican peso and 0.1% against the Canadian dollar on Monday. The Colombian peso, which rallied 3.4% over the previous three sessions, has yet to trade.
Trump’s threat of tariffs against Colombia was suspended after the country agreed to accept deportee flights on military aircraft.
The euro edged down 0.1% to $1.0481, while the pound held steady at $1.2470. The yen strengthened, rising 0.8% to 154.72 per dollar.
Nomura strategist Naka Matsuzawa commented, “Trump’s stance on tariffs appears more realistic and less aggressive, reflecting his concerns over inflation. This could weaken the dollar overall.”
Commodities and Cryptocurrencies
- Oil: Brent crude futures rose 0.3% to $78.75 per barrel, while U.S. West Texas Intermediate crude gained 0.2% to $74.80 per barrel.
- Gold: Prices dipped 0.3%, settling at $2,764 per ounce.
- Bitcoin: The leading cryptocurrency fell over 5%, dropping below $100,000 for the first time in a week, and was last trading at $99,210.
