Trump tariff threats spark new market concern, as Nvidia shows signs of a recovery


The one thing that is bigger than the AI story right now is Donald Trump. His thoughts on DeepSeek’s cheap AI large language model were always going to be important for traders, however, he didn’t dwell on DeepSeek for long. Instead, he stated his desire for ‘much bigger’ universal tariffs than the 2.5% favoured by the now confirmed Treasury Secretary Scott Bessent. This weighed on stocks during the Asian session, and US and European equity futures are also pointing to a lower open, although losses are not expected to be as sharp as they were on Monday.

Trump: The great FX disrupter

Chinese stock markets are closed for the lunar new year holiday; however, risk sentiment was weak in Asia, and the Nikkei fell more than 1%. Trump’s first words on universal tariffs since taking office took their toll on sentiment, and the dollar surged on the back of the tariff threat. The Japanese yen was the weakest performer vs. the USD, reversing moist of yesterday’s safe haven rise in the Japanese currency, the pound has also fallen sharply and is lower by $0.5 vs. the USD. While we think that the overarching trend in the G10 FX market is for a slightly weaker dollar as we move through January, President Trump is an FX disruptor, and can trigger short term shifts in sentiment.

Nvidia primed for a recovery

How does Trump react to a threat against the US AI dominance? He threatens wide-ranging tariffs on foreign produced semiconductors, pharma and metals. Since Nvidia uses chips produced by TSMC in Taiwan, it could be hit by the tariffs. However, the 17% drop in its share price on Monday, which led to a record $589bn loss in its market cap, may have gone too far and there are early signs in European trading that Nvidia could stage a recovery on Tuesday.

It is also worth noting, that Nvidia has form in steep sell offs then recovering. Bloomberg data shows that out of the 10 largest stock declines by market capitalization in history, 8 have been experienced by Nvidia. So, it may be too early to write off Nvidia yet, even though the prospect of a Chinese rival is causing a crisis for the chip maker. Nvidia released a statement that was graceful in its praise of DeepSeek’s model, saying it was an ‘excellent AI advancement’. However, did the company also call into question whether DeepSeek is telling the truth about the number of GPUs that it is using? The company also said that the work of inference models need ‘significant numbers of Nvidia GPUs and high-performance networking.’ This calls into question whether DeepSeek’s model really cost $6mn to make, and whether its purchases of Nvidia chips may be through back channels. Doubts about DeepSeek could also help Nvidia to recover later today.

DeepSeek: A victim of its own success  

DeepSeek could also be a victim of its own success. After rising to the top of the download charts for Apple and Google at the weekend, the system went down and could not cope with the sign-up demand. This suggests two things: 1, DeepSeek may not be the AI answer that everyone thought it was on Monday and 2, the AI race does not need to be a zero-sum game, which fueled the Nvidia stock market sell off on Monday.

Overall, there will be investors chomping at the bit to buy Nvidia at the current price and we expect some type of recovery, however, Trump’s tariff talk may limit how far the recovery goes.

Tech stock market rout gives other sectors and regions a chance to play catch up

Financial markets’ reaction to the sell off was worth looking at closely. The Nasdaq faced the brunt of the sell off, dropping more than 3% on Monday, while the Russel 2000 only lost 1%. The equal weighted S&P 500 index also outperformed, as non tech sectors like healthcare and financials managed to eke out a gain and benefitted from some safe haven flows. Europe also outperformed the US and the FTSE 100 managed to eke out a gain. If US tech dominance is permanently impacted by DeepSeek, then it could give Eiuropean stocks the chance to play catch up. LVMH and BMW were the two best performing stocks on the Eurostoxx 50 index on Monday, which suggests that European luxury stocks are a good defensive bet and are acting like the new tech stocks. LVMH’s earnings today could also boost the stock price, after a raft of strong earnings reports from the luxury sector earlier this month.

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