Failing to show a robust recovery in European growth, the activity indicators for January confirmed the slow recovery of activity in the eurozone, with the composite index timidly returning to the expansion phase after two months below the 50 zone. This publication, slightly above expectations, is explained by the improvement in the manufacturing sector where optimism seems to be strengthening. Although the manufacturing PMI is still in sharp contraction, with a further decline in the employment and new orders components, it is nevertheless at an 8-month high. This rebound is also materializing in France and Germany, a sign, perhaps, that the low point of activity is behind us even if political uncertainty remains (both internal to the two main countries, and external with potential American customs duties).
This modest recovery now only needs to be maintained by the monetary easing of the ECB. The first meeting of the year, which will take place this week, should indeed confirm a new reduction in key rates of 25 bps. The communication of the various members of the European institution points in the same increasingly dovish direction, even among the members considered to be more hawkish: K. Knot (Netherlands) for example says he is comfortable with rate cuts at the next two meetings while O. Rehn (Finland) is confident about the rapid return of inflation to its target. Even I. Schnabel seems to agree. The real debate will ultimately focus on determining the neutral rate to be achieved but, in the meantime, this leaves the way open for successive cuts throughout the first part of the year.
On the other side of the Atlantic, the Fed must also prepare for its return to school and Donald Trump did not wait long to put pressure on Jerome Powell by judging that rates should "drop immediately". While inflation figures have recently surprised positively, FOMC members are nevertheless expected to stick to their guns and keep rates unchanged. For his first week as president, Donald Trump is pulling out all the stops in his very particular style. While China and Europe have so far escaped his wrath, Colombia (whose trade balance is nevertheless positive in favor of the United States) has paid the price for his muscular negotiation techniques.
Finally, the news at the beginning of the week is naturally the DeepSeek earthquake, this Chinese AI developed by a hedge fund manager that is said to be more efficient than ChatGPT for an infinitely lower development cost. To date, this announcement raises more questions than answers: what about the massive investments announced in the United States ($500 billion for the Stargate project, $5 billion in spending announced by OpenAI for this year against a training cost of only $6 million for DeepSeek)? Is this the end of the stratospheric valuations of the AI ecosystem, led by Nvidia? How did they gain access to technological components normally banned in China? One thing is certain, the United States will not be alone in the AI race, and China has just caught up some of its delay at a lower cost!
