Wall Street slid on Nvidia woes amid DeepSeek GAI dominance

·       China’s generative AI app DeepSeek is compatible with ChatGPT even on less powerful processors, which may affect US AI Chip dominance led by Nvidia

·       Trump’s latest tariffs threat on Columbia also affected the US as well as global stocks on the concern of an all-out global trade war between the US and the rest of the world

·       Trump’s excessive usage of tariffs as leverage in every issue with any country may backfire as the US needs those cheaper imports from EMs to maintain the Goldilocks nature of the economy

On early Monday, Wall Street Futures were also tumbled led by Nvidia and other AI chip-related stocks as China’s increasingly popular generative AI DeepSeek is providing chat GPT-like services with less powerful processors. Chinese AI company DeepSeek's capabilities propelled it to the number one spot in the Apple App Store. US stock futures tumbled early Monday driven by growing concerns about the US's dominance in AI. Chinese startup DeepSeek's latest AI model praised for its cost-effectiveness and ability to operate on less-advanced chips, garnered significant attention as its AI Assistant overtook ChatGPT to become the top-rated free app on the US Apple App Store.

On early Monday, Wall Street Futures and also EM stocks slumped on the concern of an all-out Trump trade war 2.0 as Trump threatened 25% or even 50% tariffs on Colombia for a diplomatic/immigration issue.

On Sunday (26th Jan 25), Trump Truthed:

“I was just informed that two repatriation flights from the United States, with a large number of Illegal Criminals, were not allowed to land in Colombia. This order was given by Colombia’s Socialist President Gustavo Petro, who is already very unpopular amongst his people. Petro’s denial of these flights has jeopardized the National Security and Public Safety of the United States, so I have directed my Administration to immediately take the following urgent and decisive retaliatory measures:

 -Emergency 25% tariffs on all goods coming into the United States. In one week, the 25% tariffs will be raised to 50%.

-A Travel Ban and immediate Visa Revocations on the Colombian Government Officials, and all Allies and Supporters.

-Visa Sanctions on all Party Members, Family Members, and Supporters of the Colombian Government.

-Enhanced Customs and Border Protection Inspections of all Colombian Nationals and Cargo on national security grounds.

-IEEPA Treasury, Banking and Financial Sanctions to be fully imposed.

 These measures are just the beginning. We will not allow the Colombian Government to violate its legal obligations about the acceptance and return of the Criminals they forced into the United States!”

Trump threatened to impose a 25% tariff on Colombian goods after Colombia refused to accept U.S. deportation flights carrying illegal Colombian migrants. Colombian President Petro initially threatened the US with reciprocal tariffs and demanded that deportees be treated with dignity and transported on civilian aircraft. Following negotiations, Colombia agreed to accept the deportees under the U.S.'s terms, leading President Trump to hold off on implementing the tariffs.

The situation began when Colombian President Gustavo Petro blocked U.S. military flights intended for deporting migrants, citing concerns over the treatment of these individuals. He demanded that the U.S. establish protocols ensuring the "dignified treatment" of deportees, expressing his dissatisfaction with how previous deportations were handled, particularly reports of migrants being restrained during flights. In retaliation, Trump threatened a series of aggressive measures on January 26, 2025, including a 25% tariff on all Colombian imports, which was set to escalate to 50% within a week if Colombia did not comply.

Trump's proposed retaliatory measures included:

·       Emergency Tariffs: A 25% tariff on all goods from Colombia, increasing to 50% shortly after

·       Travel Restrictions: A travel ban and visa cancellations for Colombian government officials and their supporters

·       Enhanced Inspections: Stricter inspections of cargo from Colombia under national security grounds

·       Financial/Diplomatic Sanctions: Sanctions enforced under the International Emergency Economic Powers Act (IEEPA) targeting Colombian officials and their families

Trump characterized these actions as necessary to protect U.S. national security and public safety, asserting that Colombia's refusal to accept deported individuals posed a significant threat to the US sovereignty.

The tariff threat and subsequent resolution had notable impacts on financial markets. The USD/UST strengthened early in the week due to concerns over potential tariffs. Currencies such as the Mexican peso and Canadian dollar weakened in response to the heightened tariff risks.

Colombia's Response:

In retaliation, Colombia announced its own 25% tariff on U.S. imports, signaling a tit-for-tat escalation in trade tensions. President Petro expressed his frustration over Trump's tariffs, stating that he would impose similar measures in response to what he perceived as economic aggression. However, shortly after these announcements, Colombia indicated a willingness to accept deported migrants again, suggesting a potential de-escalation of the conflict.

Colombian President Gustavo Petro said in a post on X late Sunday that he had ordered a 25% increase of import tariffs on goods from the US: "Your blockade does not scare me--I am informed that you impose a 50% tariff on the fruits of our human labor to enter the United States, and I do the same," he said, before announcing in a post that came shortly after that he had instructed Colombia's "foreign trade minister to raise tariffs on imports from the US by 25%---American products whose price will rise within the national economy must be replaced by national production, and the government will help in this regard”.

Colombian President Petro refuted US Secretary of State Rubio's claim that Petro had approved two military deportation flights before suddenly rejecting them: "I will never allow Colombians to be brought in handcuffs on flights--Marco, if officials from the Foreign Ministry allowed this, it would never be under my direction”.

Earlier Rubio claimed in an earlier statement that Petro "authorized flights and provided all needed authorizations and then canceled his authorization when the planes were in the air." He also stressed in the statement that "Trump has made it clear that under his administration, America will no longer be lied to nor taken advantage of."

After Columbia blinks, the White House said: Colombia agreed to terms, tariffs to be held in reserve.

The United States will not impose the tariffs it threatened Colombia with after the South American Country agreed to "all" of President Donald Trump's terms, the White House said in a statement. After a heated back and forth, sparked by Colombia's refusal to allow two US military deportation flights into the country, Bogota backed down and agreed on the "unrestricted acceptance of all illegal aliens from Colombia returned from the US, including on US military aircraft, without limitation and delay." Both the tariffs and sanctions with which Colombia was faced will now be "held in reserve, and not signed" unless the country "fails to honor this agreement," the White House said. However, the visa sanctions and Customs and Border Protection's (CBP) enhanced inspections "will remain in effect until the first planeload of Colombian deportees is successfully returned."

In August 2020, former U.S. President Trump threatened to decertify Colombia as a cooperative partner in the "war on drugs," potentially leading to tariffs. This was part of his broader use of trade measures to pressure countries on policy issues, notably targeting Colombia's coca production and cocaine trafficking. Trump linked trade policy to drug enforcement, seeking stronger Colombian action against drug cartels. The threat aimed to leverage economic pressure for policy compliance. Key exports to the U.S. included coffee, flowers, and oil. Tariffs could disrupt these sectors, affecting both economies.

The U.S. did not impose tariffs. Colombia committed to enhancing anti-drug measures, easing tensions. The U.S.-Colombia Trade Promotion Agreement (2012) provided stability, though Trump's threats raised concerns about treaty reliability. The episode highlighted the intersection of trade policy and foreign policy objectives under the Trump administration.

Trump's tariff threats caused temporary market disruption, reflecting broader anxieties about trade policy unpredictability. However, swift diplomatic resolution and reliance on existing trade frameworks mitigated the sustained economic impact. The situation underscored the vulnerability of emerging markets to geopolitical trade strategies and the importance of stable international agreements.

In 2023, Colombia's total merchandise exports amounted to approximately $49 billion. Of this total, exports to the United States were valued at $14.11 billion, making the US the largest single export destination for Colombian goods. This indicates that exports to the US represented approximately 28.8% of Colombia's total merchandise exports in 2023. This indicates that the U.S. is Colombia's largest trading partner.

The key categories of products exported to the United States included Mineral Fuels, Oils, and Distillation Products; Live Trees, Plants, Bulbs, Roots, and Cut Flowers; Pearls, Precious Stones, Metals, Coins; Coffee, Tea, Mate, and Spices; and Aluminum.

In recent years, U.S. exports to Colombia have shown significant growth, with the total value reaching approximately $19.4 billion in 2022, marking an increase from $16.5 billion in 2021. The main exported commodities include: Refined Petroleum; Corn; and Soybean Meal. In 2023, U.S. exports to Colombia were valued at around $17.55 billion, with the following key sectors identified: Mineral Fuels and Oils; Machinery; and Cereals: $1.33 billion.

The trade relationship has been bolstered by various agreements, which have facilitated the elimination of duties on numerous goods, enhancing trade flows between the two nations. Overall, U.S. exports to Colombia have experienced an annualized growth rate of approximately 8.95% over the past five years.

Conclusions:

Trump is using tariffs on US imports as leverage on exporting countries for various issues ranging from illegal immigration, drug trafficking, US trade deficit, the Make in America theme, the MAGA narrative and also diplomatic/geopolitical issues. Trump may be using ‘tariffs’ rhetoric too much and may soon lose its importance/relevance. No exporters will pay additional tariffs on US exports; it’s US importers, who have to pay these tariffs, which will push up the cost of imported goods despite stronger USD as a trade war currency.

Although Trump sounded less hawkish on Chinese tariffs as China is a critical supply chain for the US, helping price ability, Trump’s suspense and the intention to use them as a deal-making weapon may add more uncertainty together with immigration policies, which may affect inflation and the labor market and Fed’s task more difficult. Fed may be on hold in Q1CY25 to see & assess actual Trump policies.

Also, Trump can’t make the US a major manufacturing hub overnight replacing China and other vital exporters simply by threatening or even putting additional tariffs on those exporting nations as the US lacks China's massive industrial and logistic ecosystem. Also, being a developed economy, labor costs are much higher in the US than in China and other EMs. The US middle class still now afford a moderate cost of living because of cheaper imports from EMs; otherwise, it can’t afford costly consumer durable products if those were completely manufactured in the US. The US needs cheaper imported goods and also services to maintain price stability and the Goldilocks nature of the economy. Trump can’t manage inflation by simply imposing additional tariffs on imported goods & services and cutting taxes to encourage Make in America policy.

Bottom line:

In any way, Trump’s bellicose comments and trade, tariffs, the Gaza war and others are now moving the market. Fed’s monopoly in controlling the market may be now in jeopardy under Trump 2.0 as we have seen during Trump 1.0. But Fed/Chair Powell may not be influenced easily by Trump’s narrative of lower inflation and lower rates. Although Trump ‘urged’ Fed/Chair Powell for an immediate rate cut on the 29th Jan’25 FOMC meeting, Powell should not oblige or even pay any heed.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42200) now has to sustain over 41800-41600 for any recovery and rally to 43000/43350-43800/45000* and 45500 in the coming days; otherwise sustaining below 41600, DJ-30 may further fall to 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (20990) has to sustain over 20700-21000 for recovery and rally to 21500/21900-22250/222500 and further 22700-23000/23300 in the coming days; otherwise, sustaining below 20700, NQ-100 may further fall to 20500/20300-20100/19250 in the coming days.

Technically, SPX-500 (CMP: 5865), now has to sustain over 5950 for any further recovery/rally to 6025/6050-6150/6200 and 6350/6500 in the coming days; otherwise, sustaining below 5925-5900, SPX-500 may further fall to 5800-5775 and 5700/5600-5475 in the coming days.

Also, technically Gold (CMP: 2690) has to sustain over 2705 for a further rally to 2725 and further 2740/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2700-2685 may again fall to 2655/2620-2605/2600 and 2595/2575-2535/2435 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.