January 29th Market Overview

Happy Wednesday.

The Fed has spoken, and they're clearly in no rush to cut rates. Powell came out swinging today - not only did he brush off Trump's rate cut demands with a firm "no contact" statement, but the Fed dropped their previous optimistic language about inflation progress entirely. Meanwhile, the AI drama keeps building as OpenAI accuses Chinese startup DeepSeek of using its models for training, right as semiconductor giant $ASML posts mind-bending bookings at $7.40B - double what analysts expected.

Quite a Wednesday in the markets.

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Let's dig in...

Executive Summary

• Fed maintains rates at 4.25%-4.50% while warning that inflation "remains somewhat elevated," removing previous optimistic language about inflation progress from the December statement
  

• OpenAI found evidence that Chinese AI startup DeepSeek used its models for training, while independently the U.S. Navy banned DeepSeek's use citing security concerns. Reports indicate DeepSeek spent over $500M on tens of thousands of $NVDA GPUs for development
  

• $ASML reports record earnings at $7.40B versus $3.68B expected, with CEO highlighting AI as key growth driver despite shifting market dynamics
  

• Coffee futures hit historic highs of $3.649 per pound as India, the world's seventh-largest producer, projects 10% drop in exports amid declining production and low inventory

Market Overview

Key Market Drivers

1. Fed Policy & Politics: Fed Chair Powell directly addressed market tension by confirming "no contact" with President Trump after the newly inaugurated president told business leaders at Davos he would demand lower interest rates. The Fed's removal of inflation progress language from their statement signals a more hawkish stance
   

2. AI Competition Heats Up: The DeepSeek controversy reveals escalating U.S.-China AI tensions. According to Semianalysis research, DeepSeek invested over $500M in $NVDA GPUs, while $BABA countered by launching Qwen2.5-Max, claiming superior performance in key benchmarks
   

3. Semiconductor Demand Surge: $ASML's Q4 results spotlight unprecedented chip sector demand, with bookings of $7.40B doubling estimates. CEO Christophe Fouquet emphasized that "AI remains a key growth driver" while noting shifting customer dynamics. The company projects FY'25 net sales between $30B-$35B
   

4. Supply Chain Pressures: Beyond the coffee futures reaching $3.649 per pound, India's projected 10% export decline highlights broader agricultural supply constraints. According to Reuters, reduced carry-forward stocks from last season compound the supply issues, potentially impacting major retailers like $SBUX

Stock Spotlight

• $ASML: Q4 revenue $9.26B ▲28% YoY, operating margin ▲317 bps to 36.2%. FY'25 guidance: $30-35B net sales. Backlog at $36B

• $SBUX ▲8.81% to $109.25. Same-store sales down 4% for fourth straight quarter. Plans 30% menu reduction by 2025, added 377 new stores

• $F5 ▲11% on Q2 guidance: $705-725M revenue vs $702.7M expected

• $NVDA ▼4.58% to $123.08. Bloomberg: Trump officials discuss China chip sale limits. Down 14% since Monday's DeepSeek news

Big Name Updates

• $AAPL: Bloomberg reports SpaceX and $TMUS satellite service integration for iPhone OS. Oppenheimer downgrades on China competition

• $META: Zuckerberg explores D.C. property purchase. Q4 focus on AI CAPEX guidance

• $TSLA: Norway sovereign fund confirms no divestment plans

• $BABA ▲1.19% to $97.17. Qwen2.5-Max AI model outperforms DeepSeek in benchmark tests

Other Notable Company News

• $MSTR: Mizuho initiates outperform, $515 target on Bitcoin adoption trends

• $LYFT: PT cut to $19, Waymo freeway launch poses competitive threat

• $KSS: 10% corporate workforce reduction

• $RDDT: Adds Meta campaign import tool for advertisers

Sector Watch

Bond Market

Treasury yields jumped after the Fed meeting, with 2-year hitting 4.253% and 10-year climbing to 4.589%. Fed funds futures now price just a 12% chance of no cuts in 2025 and 31% probability of one cut - both higher than pre-meeting levels.

The removal of "inflation progress" language from the Fed statement triggered the move higher in yields.

Policy Watch

• Fed maintains "significantly less restrictive" stance but Powell emphasizes "real progress on inflation" needed before policy changes
  

• Powell confirms "no contact" with Trump after Davos rate cut demands, stressing Fed independence: "The public should be confident we will continue to do our work as we always have"
  

• Powell warns tariff impact range is "very wide," notes uncertainty around retaliation and consumer effects
  

• Fed commitment to 2% inflation target "will not be a focus" of upcoming framework review, according to Powell

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What to Watch

1. Big Tech's Critical Q4 Reports Tonight
   

   • $META and $MSFT CAPEX figures will indicate AI infrastructure spending trajectory

   • Market particularly focused on CAPEX guidance after semiconductor sector volatility

   • Any reduction from expectations could trigger another semiconductor selloff

   • In-line numbers likely to support sector rebound, according to TradeStation market strategist
     

2. AI Model Control Measures
   

   • Commerce Department's potential new $NVDA China sales restrictions

   • OpenAI's evidence of model "distillation" by DeepSeek

   • Defense sector response following U.S. Navy's security concerns

   • Impact on U.S.-China tech relations
     

3. Supply Chain Inflation Signals
   

   • India's coffee exports projected down 10% amid low inventory

   • $SBUX supplier costs after futures hit $3.649

   • Impact on broader consumer inflation measures

   • Menu price adjustments across food service sector
     

4. Trump-Fed Dynamic 
   

   • Market reaction to Powell's "no contact" statement

   • Further Trump commentary on rates after Davos demands

   • Fed independence under political pressure

   • Christopher Rupkey at FWDBONDS warns of potential policy influence