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Recent news from China regarding DeepSeek's advancements in artificial intelligence has triggered a significant drop in the shares of major tech companies in both Europe and the United States. This decline has raised concerns about America's technological dominance. Amid this uncertainty, investors have become increasingly risk-averse, leading to a surge in demand for government bonds in developed economies.
The breakthrough in Chinese AI technology has dealt a serious blow to the U.S. AI program introduced just a week ago by Donald Trump. In response to this disappointment, market participants began actively selling shares of companies such as Nvidia, Microsoft, and others. The sell-off quickly turned panic-driven, with investors seeking to hedge against high volatility, as indicated by the "fear index" (VIX). This resulted in increased purchases of U.S. Treasuries, which caused a sharp drop in yields.
Previously, the U.S. dollar had fallen below the 108.00 level on the ICE index but gained strength due to the rising demand for Treasuries. The dollar had shown growth in anticipation of Trump's economic reforms, including potential tariffs, and expectations of rising inflation in the U.S., which made further rate cuts seem unlikely. However, the increasing uncertainty stemming from mixed signals from the new administration has recently weighed on the dollar's performance.
As the Federal Reserve begins its two-day meeting today, the U.S. dollar is starting to recover its standing in the Forex market.
According to the dynamics of federal funds rate futures, the market predicts a 97.3% chance that the Federal Reserve will keep monetary policy unchanged, despite former President Trump's calls for further rate cuts. This expectation is unlikely to significantly impact the market, as it has already accounted for this possibility. Any major changes would only arise from unexpected statements by Federal Reserve Chair Jerome Powell, although no big surprises are anticipated. Powell's press conference is expected to reaffirm the Fed's current pause in rate decisions, emphasizing the risks of inflation and the uncertainties surrounding Trump's presidency.
Regarding the stock market, the panic observed on Monday seems excessive and driven by emotion. A recovery in demand for U.S. equities, as well as for cryptocurrencies, is anticipated. The economic policies of the 47th president are expected to bolster domestic economic growth and manufacturing, particularly in light of Europe's stagnation and rising tensions with China.
#SPX
The S&P 500 futures CFD has partially recovered from yesterday's decline, which was influenced by news about DeepSeek's achievements. There is a possibility that the contract will continue to rise towards 6100.00 after consolidating above 6000.00.
GOLD
The price of gold has stabilized above 2735.20. Weakness in the dollar could lead to an increase in the price to 2662.00.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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