Morning bid: China's AI challenger puts investors on edge

A look at the day ahead in European and global markets from Kevin Buckland

For two years, investors and analysts have pondered what - if anything - could take some of the steam out of the AI stocks rally. China may have just come up with the answer.

Futures in the tech-centric U.S. Nasdaq Composite index had tumbled 1.8% by around midday Monday in Asia, as investors weighed the implications of Chinese startup DeepSeek's release of a rival to ChatGPT that it claims is cheaper and may on some metrics be better. Pan-European STOXX 50 futures slipped half a percent.

Trump was also roiling currency markets again at the start of the week, hitting Colombia with punitive levies and sanctions for turning away military planes carrying deported migrants. Just hours later, Washington was announcing an about-face from Bogota, which agreed to all of Trump's terms.

Colombia's peso hadn't traded in Asian time but Mexico's currency slid as much as 1.2% and Canada's loonie weakened 0.3%. The offshore yuan eased 0.4%.

Compared with Trump's strong-arm tactics over immigration, however, his approach to China so far has been more nuanced. Although he has threatened 10% tariffs from Feb. 1, that was a far cry from the 60% duties he pledged on the campaign trail and less even than the 25% levies that neighbours Canada and Mexico may face on the same date.

Maybe it's the rekindled bromance with Xi Jinping: Trump went so far as to say he'd rather not resort to tariffs in dealing with Beijing, after what he called a "good, friendly conversation" with China's leader by phone earlier this month.

As for DeepSeek's roiling of tech share prices, the jury is still out on how much of a threat it may actually pose to its U.S. rivals, but market players look like they'd rather sell first and hear the verdict later.

Ironically, it's a challenger of America's own making, after years of chip-related sanctions and now renewed tariff threats under President Donald Trump, which encouraged a self-sufficiency push by Beijing that is now bearing fruit.

Trump has made no mention of the potential threat to his own half-trillion-dollar AI initiative but traders may be keeping a close eye on his Truth Social account.

The DeepSeek news could also focus more attention than usual on Big Tech's quarterly health check this week, with four of the so-called Magnificent Seven reporting financial results: Apple, Microsoft, Facebook-owner Meta Platforms and Tesla.

Also this week, a host of central banks globally will set policy, including the Fed on Wednesday and the ECB a day later.

For Asia, though, a lot of this happens in the vacuum of lunar new year holidays. Mainland Chinese bourses will be closed from tomorrow through Tuesday of next week.

Other developments that could influence markets on Monday:

-Germany ifo surveys (Jan)

-UK Nationwide house prices (Jan)

-ECB President Lagarde speaks at Holocaust remembrance event in Frankfurt

(By Kevin Buckland; Editing by Edmund Klamann)