China’s AI disruptor DeepSeek triggers global selloff

Good morning. Here's what happened overnight and what you need to know today.

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1.

Deep disruption: Global markets tumbled on Monday as concerns over Chinese AI startup DeepSeek’s cost-effective model sparked a selloff in tech stocks. Nvidia was copping an unprecedented USD560 billion ($892.16 billion) market value drop, the largest in US stock market history, with shares down as much as 18%. The S&P 500 was down 1.83% and the Nasdaq 100 fell 3.28%, also pushed by declines in tech giants like Microsoft, Alphabet and Meta. Semiconductor stocks dropped 8.2%, while power utilities like Vistra and Constellation Energy suffered declines of 27% and 19%, respectively. Treasury yields dropped, the VIX spiked to 20—its highest since December—and Bitcoin fell 4.6%. Ahead of key earnings reports from Big Tech, analysts highlighted DeepSeek's efficient AI, powered by less-advanced chips at a fraction of the cost of Western technology, as a disruptor to high-cost Western AI models. DeepSeek's app topped US download charts and the company said its Janus-Pro-7B AI model outperformed rivals Stability AI and Microsoft-backed OpenAI's DALL-E 3 in image generation benchmarks.(Capital Brief)(Reuters)(Bloomberg)(Forbes)

2.

Nomads welcomed: New Zealand eased visitor visa rules to allow remote work for foreign employers while travelling in the country, aiming to boost tourism, position the country as a destination for global talent and support economic recovery. Effective Monday, the changes apply to all visitor visa categories, permitting stays of up to 90 days for remote work, with potential tax implications for longer durations. “This is a brand-new market of tourists New Zealand can tap into. We want people to see our country as the ideal place to visit and work while they do it,” Immigration Minister Erica Stanford said. Tourism, New Zealand’s second-largest export earner, generates NZD11 billion annually and supports 200,000 jobs but is recovering slowly, with international visitors at 86% of pre-pandemic levels. Similar measures to attract digital nomads have been adopted by Spain, Japan, South Korea, Portugal and Brazil. (Bloomberg)(Reuters)

3.

UBS cull: UBS Group began cutting hundreds of jobs in Switzerland as part of its integration with Credit Suisse, after acquiring it in a government-brokered rescue in 2023, Bloomberg reported. The redundancies affect employees at all levels, and impacted staff can participate in a program allowing up to a year to find new roles within UBS. UBS spokespeople said the bank is working to keep redundancies minimal globally. UBS is streamlining operations to achieve USD5.5 billion ($8.76 billion) in additional savings, on top of the USD7.5 billion realised since the merger. The combined workforce, which peaked at 120,000 globally, has already decreased by 10,000. UBS is also phasing out Credit Suisse’s branding and IT systems. An updated employee count will be shared on 4 February when UBS reports its 2024 results. (Blomberg)

4.

Human chain: Humanity Protocol, a blockchain-based identity verification firm, reached a USD1.1 billion ($1.58 billion) valuation after securing USD20 million in a funding round co-led by Pantera Capital and Jump Crypto. The company uses palm scans to verify online accounts, tackling bots, fake accounts and online fraud without exposing personal data. Founder Terence Kwok told Reuters the funds will support a wider product rollout and the launch of its crypto token, now in final preparations. Startups in the crypto and blockchain sectors anticipate renewed interest with Donald Trump's return to the White House and his pledge to support the industry and reduce regulations. Humanity Protocol’s approach positions it as a competitor to Worldcoin, co-founded by OpenAI CEO Sam Altman, which uses iris scans for identity verification. The funding follows a USD30 million round in May 2024, which valued the firm at USD1 billion. (Capital Brief)(Humanity Protocol post)(Reuters)

5.

Citi shuffle: Citigroup’s global head of private banking, Ida Liu, has resigned, marking the latest high-profile exit as CEO Jane Fraser continues to overhaul the bank’s wealth division. Liu, with Citi for 18 years and global head since 2021, announced her departure on LinkedIn, citing a desire for “new challenges and opportunities.” Her role will be replaced by a restructured model where four regional heads report to Andy Sieg, Citi’s wealth business chief, Bloomberg reported. Sieg, hired from Bank of America in 2023 to revitalise the struggling division, has revamped compensation to reward private bankers for growing client assets instead of per-transaction fees, as private bankers are typically paid, according to the FT. Liu, credited with launching Citi’s fashion, media and entertainment practice, will leave at the end of January. Her exit follows other senior female departures.(Liu’s LinkedIn post)(Bloomberg)(FT)

6.

Tariff spat: Colombia reversed its refusal to accept deported migrants on US military planes after President Donald Trump threatened the Latin American country with steep tariffs and sanctions, averting a trade clash that risked disrupting billions in exports. Trump had ordered a 25% tariff on Colombian goods, escalating to 50% in a week, after Colombian President Gustavo Petro blocked two military deportation flights, objecting to the use of shackles on detainees. Following discussions, Colombia agreed to the “unrestricted acceptance” of deportees. Colombian officials said deportations would resume under conditions of dignity, with military planes used only as a last resort. The threatened tariffs would be “held in reserve,” while sanctions, including visa restrictions on Colombian government officials and associates, will be in place until the first deportation flight arrives, the White House said. Colombia, a key US trading partner, exports oil, coffee and flowers, sectors that faced severe disruption if tariffs had been imposed. (NYT)(CNN)(Bloomberg)

7.

Steel battle: Activist investor Ancora Holdings has launched a proxy fight at US Steel, nominating nine directors, including ex-Stelco CEO Alan Kestenbaum, to the board. Ancora is urging US Steel to abandon its USD14.1 billion ($22.45 billion) merger with Nippon Steel, blocked by former President Joe Biden on national security grounds and now entangled in litigation. Ancora claims the litigation has no legal precedent and advocates collecting a USD565 million breakup fee. US Steel maintains its partnership with Nippon Steel is the best path forward. Ancora holds 0.18% of US Steel but is increasing its stake. Cleveland-Cliffs, previously outbid by Nippon, is reportedly considering a new offer with Nucor, but Ancora opposes the Nippon merger and any sale to Cleveland-Cliffs. Instead, it wants a turnaround led by Kestenbaum. US Steel shares are down 22% in the past year. (WSJ)(NYT)(Bloomberg)

8.

EV tariffs: Tesla filed a legal challenge at the General Court of the European Union against anti-subsidy tariffs on Chinese-made EVs. Introduced in October, the tariffs impose a 7.8% rate on Tesla and up to 35.3% on other manufacturers, alongside a standard 10% import tariff. Tesla filed its complaint last Wednesday, the final day to do so, with court proceedings typically lasting 18 months. BMW, BYD, Geely, SAIC and the China Chamber of Commerce for Import and Export of Machinery and Electronic Products have lodged similar complaints. It comes as Tesla faces growing competition in China and Europe, leading to its first-ever annual delivery decline in 2024. Analysts expect a 2025 rebound, aided by the launch of a lower-cost model in the first half of the year. Meanwhile, Tesla launched a redesigned Model Y crossover in the US, Canada and Europe after its debut in China. (Capital Brief)(Reuters)(FT)