The Davy Digest - 4th February 2025

Last week was a volatile one as the release of DeepSeek’s R1 model caused a sharp sell-off in some tech stocks including Nvidia. The model’s capabilities are similar to advanced models from the likes of OpenAI and Alphabet while having materially lower training costs. The Fed met last week and decided to keep rates steady as inflation remains “somewhat elevated”. Powell said they will need to see “real progress on inflation or some weakness in the labour market” before further monetary policy changes are made. The ECB met on Thursday and decided to lower rates by 25 basis points, with Lagarde stating that disinflation is “well on track.” The STOXX Europe 600 index hit a record high last week. European equities have outperformed this year as tariff fears have failed to materialise so far in the first few weeks of the Trump administration. China A shares finished the week lower, as China’s manufacturing activity unexpectedly contracted in January.

Last week's highlights

	Federal Reserve Meeting (29/01) – Holds rates steady at a range of 4.25% to 4.5%. Personal Consumption Expenditures (PCE) (31/01) – PCE came in at 2.6% while core PCE (ex food & energy) came in at 2.8% as expected.
	IFO Surveys (27/01) – Decreased to -7.3 points in January. Eurozone Preliminary Q4 GDP (30/01) – Came in unchanged from previous quarter due to weakness in Germany & France.  European Central Bank Meeting (30/01) – Cut rates by 25 bps.
	China NBS Manufacturing PMI (27/01) – Reduced to 49.1 in January, below consensus. Tokyo CPI Inflation (30/01) – Climbed to 3.4% year-over-year while Core CPI hit a one-year high at 2.5%.

Looking ahead to this week, investors will receive more labour market data in the US. The most recent data reflected a very strong US labour market with the unemployment rate falling to 4.1% from 4.2%. Eurozone inflation data was released yesterday (Monday), coming in at 2.5% year-over-year vs 2.4% forecast. Eurozone retail sales data is due out on Thursday, with recent reports showing a steady trend upwards. The Bank of England will meet on Thursday with markets expecting a 25 basis point rate cut. Finally, in China, the Caixin services PMI will come out on Wednesday.

What's on the radar

	ISM Manufacturing PMI (03/02) Nonfarm payrolls (07/02) Unemployment rate (07/02)
	Core Harmonised Index of Consumer Prices (03/02) Eurozone Producer Price Index (05/02) Eurozone Retail Sales (06/02)
	Bank of England meeting (06/02)
	Caixin Manufacturing PMI (03/02) Caixin Services PMI (05/02)

Chart of the moment

You’re gonna need a bigger moat.

Source: DataStream as of 31/01/2025

• Nvidia hit some turbulence last week as the release of DeepSeek’s R1 model prompted many to question the amount of money being spent on AI models. 
• DeepSeek released a new open-source model that reportedly requires much less energy and processing power than other leading AI applications.
• The implication is that less chips may be needed in future to develop more advanced AI models. This is a positive for AI adopters but negative for enablers. 
• In the long run, cheaper and more available AI is positive for productivity and corporate profitability.