ASIAN MORNING BUZZ: Tech stocks plunge on China's DeepSeek AI model

Headlines

** Nasdaq tumbles as China's AI model threatens Silicon Valley

** Treasuries rally as market sought for safer havens

** Primary markets barren as Chinese New Year season begins

** Asian USD IG and HY spreads widen from tightest levels

The US stock market had a rough start to the week as China's artificial intelligence model, DeepSeek, threatens to disrupt the dominance of US tech players. The Chinese startup offers a low-cost AI model that rivals those of US companies, heightening investor concerns over the billions of dollars that US companies have poured into their AI development.

The rout was perhaps exacerbated by profit taking after US equities surged to all-time highs last week. In addition, traders could also be trying to reduce their risk ahead of upcoming earnings by tech heavyweights (incl Amazon, Tesla, Microsoft, Meta and Apple) later in the week.

Chipmaker Nvidia's stock plummeted 17% on Monday and erased US$589bn from its market capitalisation. That also marked the biggest single day loss in market capitalisation in US stock market history.

As Nvidia has a sizable weightage in the major indexes, the huge drop rippled through the rest of the market, with the S&P500 and Nasdaq closing down -1.46% and -3.07% respectively. In contrast, the Dow Jones index closed the session 0.65% higher given the non-tech nature of its constituents.

The broad selloff benefitted the US Treasury market where yields fell sharply across the curve as investors sought safer havens.

The benchmark 10-year note saw its yield fall 8.71bp to 4.534%, its lowest level of the year, while the long 30-year bond declined 7.50bp to 4.77%, also its lowest level of the year. The 2-year note saw its yield rally 7.05bp to close at 4.195%.

That comes ahead of the Federal Reserve's interest rate decision on Wednesday, where they are expected to keep rates unchanged, marking the first pause since the rate cutting cycle it kicked-off in September.

In the interim, Durable Goods Orders, Capital Goods Orders and House Price Index data will all be scrutinised later on Tuesday for potential inflation trends and should provide further insights in US economic activity and price pressures.

For a more comprehensive look at Monday's price action and a look ahead to Tuesday's key event risk, see IGM’s Asia Breakfast Briefing.

Blistering January comes to a halt in primary

As Chinese New Year celebrations move into full swing this week, the APAC US$ primary bond market has gone into typical holiday mode.

The market was devoid of activity on Monday, and mirroring previous years, we expect this trend to continue throughout the week, with the first signs of life probably only emerging in the new month of February next week.

Having said that, issuers have already raised a grand total of US$43.3bn in January this year, marking the highest monthly issuance in two years. The previous highest monthly volume stood at US$45.65bn in January 2023.

Unsurprisingly, January has typically been one of the busiest months of the year as issuers attempt to pre-fund themselves ahead of any volatility that may arise.

A quick look at monthly supply for the past five years shows that volumes in January topped in the years 2021-2023, took second place in 2020 before coming in third last year.

Asian USD IG bond spreads edge away from historical tights

A quick look at the broader Asian USD cash credit market shows that investment grade spreads (IG) exhibited a widening bias at the start of the week, edging further away from their historically tight levels seen in Q4 2024 in the process, while high yield spreads were little changed on Monday, as highlighted by a pair of Bloomberg indices.

The Bloomberg Asia USD IG Bond Index Avg OAS (BAIGOAS) closed Monday's session 2.02bp wider at 73.4bp which put the IG index ca. 4.5bp wide of its historically tight level of 69bp posted in Nov 2024.

Its high yield counterpart - Bloomberg Asia USD HY Bond Index Avg OAS (BAHYOAS) - was broadly flat yesterday at +0.73bp to 432bp which is still ca. 31bp wide of a 6-year tight at 400.9bp that the index registered earlier this month on 10-Jan-2025.

US Credit

Peruvian utility company, Kallpa Generacion SA raised $500m via a 7yr note offering, while another Peruvian entity, Banco Internacional del Peru SAA Interbank sold $350m 10.25nc5 subordinated Tier 2 notes. That brought ex-SSA issuance for the month to $163.4bln, sort of dashing the hopes that we could see the $26bln needed to reach the average monthly estimate of $187.5bln. Not with a host of obstacles standing in their way. For more colour see IGM's THE ENDGAME.

European Credit

It was a slow start to the new week for primary activity as a sharp drop in tech stocks weighed heavily on broader market sentiment. In the end, just four issuers offered euro paper for a total of EUR3.55bn, as detailed in the IGM DAILY EUR NICS & BOOKS. Tone dependent, the pace looks likely to increase on Tuesday though, with a number of names mandating leads for trades ahead of the looming FOMC and ECB verdicts on Wednesday and Thursday respectively. Elsewhere, KfW hit the sterling market with a GBP300m tap. For a more comprehensive look at issuance trends in Europe on Thursday, see IGM's EUROPEAN DAILY CLOSE.

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