Alibaba AI Model Raises Valuation Concerns

Image Source: DepositPhotos

• Alibaba (BABA) AI model raises valuation concerns

• Bond yields head sharply lower

• UK jobs market weakens, bolstering rate cut hopes

European markets are ushing higher in early trade, building on the diversification narrative after recent gains seen for defensive sectors in the US. The Chinese New Years holidays might bring thin trading in Asia, but the country continues to impact global sentiment after Alibaba released their latest Qwen3.5-plus model that provides high-end performance at 1/18th of the price. For investors, there is always the concern that this could represent another DeepSeek moment as markets question the justification of huge hyperscaler capex spending and Nvidia (NVDA)’s dominance. The growing regularity of Ai-led selling pressure across a number of sectors has raised support for defensive stocks and those dealing with physical goods. The strength seen for utilities, consumer staples, and manufacturing names does highlight the benefit of diversification that has helped benefit European markets.  

One defensive play that has gathered attention given the risks evident for stockpickers in an ever changing world has been the trusty treasury, with US 10-year yields falling to a two-month low. Notably, we have also seen significant strength in demand for Japanese bonds in an overnight auction, with yields moving sharply lower despite a projected 28% increase in annual bond issuance in three-years given increased borrowing costs. 

In the UK, the latest jobs report made for difficult reading, with higher unemployment, a 28.6k rise in claimants, and a slump in earnings growth. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months. With markets now pricing a 80% chance of a March cut, we are seeing GBPUSD fall back below 1.36 in early trade. Looking ahead, Canadian inflation provides the main event of note, with tomorrows RBNZ rate decision and FOMC minutes likely to provide the next major spark for markets.