Aurelia Butler

Services inflation saw a marginal rise from 3.9% to 4.0%. Despite the recent uptick, analysts anticipate a significant decline in services inflation across the euro-zone in 2025.The detailed analysis of December’s inflation data highlighted persistent inflation within three specific sectors: insurance, transport, and tourism, which have been influenced by unique factors. However, when excluding these sectors, services inflation has seen a notable decrease over the past two years.The increase in December was primarily driven by the transport and package holiday categories, while other sectors collectively contributed less to the overall inflation figure.Experts at Capital Economics point to several reasons supporting a broad-based reduction in services inflation for the current year. Transport and package holiday costs, which are partly dependent on oil prices, are projected to drop based on historical patterns in oil price movements. Despite a recent surge in oil markets, the anticipated decline in these sectors’ inflation rates appears unaffected.Furthermore, with a sharp decline in goods inflation, inflation for vehicle and home insurance is also expected to decrease soon. A return to pre-pandemic averages in insurance, transport, and tourism could potentially reduce services inflation by 1.2 percentage points.Other aspects of services inflation are also predicted to fall. For instance, catering services inflation, which was at 4.3% in December, is projected to drop to around 2.5% by mid-year, potentially reducing services inflation by another 0.4 percentage points.A key factor contributing to the anticipated decline is the slowing economic growth and cooling labor market, which are leading to a reduction in wage growth. The historical correlation between wage growth and services inflation reinforces the expectation that services inflation will substantially decrease in 2025.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

(Reuters) – The dollar steadied on Friday, but was on track to end the week lower after a six-week winning streak, while investors turned their focus to Donald Trump’s presidential inauguration and awaited the incoming administration’s policies.The yen was poised for its strongest weekly performance in over a month as expectations grow that the Bank of Japan will raise rates next week, putting the dollar on the back foot. The dollar has surged in the past few weeks on the back of rising Treasury yields, reflecting expectations that President-elect Trump’s policies could boost inflation when the U.S. economy is already strong. But bond markets got relief from a relentless sell-off after softer U.S. core inflation data on Wednesday, plus remarks from Federal Reserve Governor Christopher Waller on Thursday, who said three or four interest rate cuts were still possible this year if the data supported that. This led markets to up their bets on Fed cuts this year, putting some pressure on the dollar ahead of Trump’s return to the White House next week.Money markets currently price in about 43 basis points in U.S. rate cuts in 2025. Investors are now awaiting Trump’s inauguration speech on Monday to get a better sense of his policy steps, with a volatile period for markets expected ahead. “What happens next is just so dependent on what we hear from Trump, what he does and the policies that he implements in his first couple of days and weeks,” said Fiona Cincotta, senior market analyst at City Index.But Cincotta said she would be looking to gauge market sentiment later in the session. “It’ll be interesting to see what happens towards the end of the session today… Whether investors are prepared to hold risk going into next week, or whether we see a little bit of a sell-off heading into the weekend.”The yen has climbed more than 1% against the dollar this week, reversing last week’s decline. It was last 0.37% weaker at 155.69 per dollar, after touching a one-month high of 154.98 per dollar earlier on Friday. Remarks from BOJ officials along with Japanese data that point to persistent price pressure and strong wage growth have helped boost market confidence that a rate shift is in the offing, with traders pricing in an 80% chance of a hike next week.Sources also told Reuters that the central bank is likely to hike rates next week barring any market shocks when Trump takes office.”Unlike most other central banks, they (BOJ) benefit from the Fed’s recent hawkish shift which means they can hike without causing too much currency volatility,” said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management.Sterling was down 0.35% at $1.2194, not far from the 14-month low it hit on Monday. British retail sales fell unexpectedly in December, according to data on Friday that raised the risk of an economic contraction in the fourth quarter.The euro was flat at $1.03. That left the dollar index, which measures the U.S. currency against six other units, up 0.1% at 109.08, away from a more than two-year high touched at the start of the week. The index is set for a drop of about 0.5% in the week, which would snap a six-week run of gains.China’s yuan was little changed at 7.3290 per dollar after data showed the world’s second biggest economy grew 5.4% in the fourth quarter, significantly beating analysts’ expectations and putting full-year 2024 growth at 5%, bang in the centre of Beijing’s target.Bitcoin rose 2% to $102,246 on Friday, amid hopes in the crypto industry that the incoming Trump administration will mark a shift in cryptocurrency policies. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldAs Scott Bessent, Trump’s Treasury secretary nominee, endured his first Congressional hearing on Thursday, he was grilled about America’s economic challenges.Even before he started, however, evidence had emerged of these: on Wednesday the Mortgage Bankers Association reported that the 30-year mortgage rate had jumped above 7 per cent, following a 1 percentage point rise in 10-year Treasury yields since last autumn. This is not particularly punitive by the standards of financial history. Since 1971, the average mortgage rate has been 7.73 per cent — and before 1990, rates generally sat over 10 per cent. But the rub is that US voters have become used to rates of 3 per cent in the past decade. Indeed the real estate industry has became so addicted to cheap money that insiders tell me that if 10-year yields rise to 5 per cent for any period of time — from the current 4.65 per cent level — they expect strings of defaults. And what is particularly notable — and unwelcome — about this development is that it has occurred even though the Federal Reserve has loosened policy quite markedly since last autumn. Such divergence is highly unusual — and implies that traders are blowing a big fat raspberry at the Fed. Why? If you are an optimist, you might blame the strong US growth outlook for rising rates. A less upbeat explanation is that investors are braced for price rises. For while equity markets rallied this week on better than expected inflation data, this could change if president-elect Donald Trump follows through on his threats to introduce trade tariffs and mass deportations.Another possible explanation, suggests the Centre for Economic Policy Research, is that non-US central banks are furtively cutting their Treasury purchases. And one factor that could be pushing long-term yields up is that Bessent has (rightly) criticised Janet Yellen, his predecessor, for expanding short-term debt issuance. This implies he hopes to sell more long-term debt.However the most contentious — and consequential — issue is the US fiscal outlook. Rightwing pundits have warned for years that this is on an unsustainable track: on current trends, the debt-to-GDP ratio is projected to move from 100 per cent to 200 per cent in a decade — and the deficit is now running at over 6 per cent of GDP. That sparked Luke Gromen’s influential “Tree Rings” newsletter to warn that if the 10-year yield rises above the nominal growth rate it is “mathematically certain to quickly trigger a debt death spiral . . . unless either or both US rates are cut quickly or US nominal growth is accelerated higher”. He believes this may have already occurred. More notable still, this week Ray Dalio, the founder of Bridgewater hedge fund, published the first part of his analysis of historical debt crises. He said he was “deeply concerned” that America will “go broke” and warns that a multi-decade debt cycle could soon implode. Thankfully, Dalio thinks this ugly scenario could still be avoided if radical reforms make the debt burden more sustainable. This could include cutting interest rates to 1 per cent, letting inflation rise to 4.5 per cent, increasing tax revenue by 11 per cent, slashing discretionary spending by 47 per cent or some combination.But implementing such a holistic policy mix will be tough, he added. And that has two implications. In macroeconomic terms, it constrains Bessent’s room for manoeuvre; he admitted on Thursday that the country was now “hard-pressed” for fiscal firepower. And in financial terms, there is a notable — and rising — risk of market turmoil if investors embrace Dalio’s dark predictions. I am told that some of Trump’s supporters, such as Howard Lutnick, head of Cantor Fitzgerald and the nominee for commerce secretary, insist that such market pressures can be contained. After all, global financial institutions need to buy and own Treasuries — almost irrespective of price — to meet regulatory rules. And foreign investor demand for US debt still seems sky high, particularly in places such as Japan.But, as I have noted before, a swelling part of this foreign demand is now coming from potentially flighty hedge funds. And during a recent trip to Asia, senior financiers muttered that they are furtively hunting for ways to hedge their vast Treasuries exposures — even as they gobble them up. The same thing is happening in Europe. Thankfully, Bessent seems to understand these dynamics well. Indeed, he told Congress that the reason he left his “quiet life” as a hedge fund manager to serve in Treasury was because he feels a duty to tackle these fiscal pressures — and thus avoid Dalio’s doom loop. But whether he has the political power — or savvy — to do this is anyone’s guess. He is certainly in a race against time. So investors had better keep watching those Treasury yields. After all, one thing that Trump does not want on his watch is a full-blown market meltdown, let alone a Maga revolt over surging mortgage rates. If anything is going to impose discipline on his administration, it might just be those bond rates; indeed, it is probably the only factor that will. gillian.tett@ft.com More

Joe Biden has won plaudits internationally for presiding over an economy that has achieved stellar growth. But as he prepares to step down on Monday, many Americans feel they are worse off than when the president took office.Biden’s four-year term spanned a period of global economic upheaval, from the coronavirus pandemic and the worst inflation shock in a generation to rising tensions with China. Yet data compiled by analysts at BCG shows that Donald Trump will take office with one of the strongest economic backdrops of any president since Jimmy Carter. “Biden inherited a Covid-battered economy and he is bequeathing an exceptionally strong one,” said Mark Zandi, chief economist at Moody’s Analytics.The US unemployment rate is near historical lows, and inflation is falling, albeit slowly. The S&P 500 has also risen more than 50 per cent since Biden’s term began.US economic policy, meanwhile, has moved further from free-market orthodoxy towards a bigger role for the state. “Bidenomics”, in the president’s own words, was about “growing the economy from the middle out and the bottom up”.Some content could not load. Check your internet connection or browser settings.But many American voters — including those towards the bottom of the income scale — believe the country’s economic resilience failed to benefit them.His policies, including the $369bn Inflation Reduction Act, did not cut through to the general public, failing what political analysts refer to as the “Reagan test”. In the final debate of the 1980 presidential race, Republican nominee Ronald Reagan asked the public: “Are you better off now than you were four years ago?” A survey from the University of Michigan shows that Americans of all income bands feel the answer to that question under Biden is a resounding “no”. Some content could not load. Check your internet connection or browser settings.In the run-up to the election, Americans consistently thought Trump would be better at handling the economy than the president, according to the Financial Times-Michigan Ross polls.Inflation, which surged to a multi-decade high during Biden’s term, ranked as voters’ number-one concern. While many economists blamed the surge in prices on global factors such as supply chain snags, others say his $1.9tn American Rescue Plan in 2021 — which provided direct stimulus payments to households — played a critical role in raising the cost of everyday essentials such as eggs, bread and rent. Though the budget deficit as a share of GDP has fallen, it remains uncomfortably high, at an estimated 6.4 per cent. The federal debt is also on an upward trajectory, the scale of which the independent Congressional Budget Office has described as “unprecedented”. Some content could not load. Check your internet connection or browser settings.Loose monetary policy when Biden became president also contributed to the post-pandemic increase in prices. That left the Federal Reserve playing catch-up, using bumper interest rate rises of up to 75 basis points at a time to quell price pressures.While inflation is now closer to rate-setters’ 2 per cent goal, the interest rate increases damped the economic mood by leaving borrowing costs at their highest level for more than two decades.Consumer prices, meanwhile, remain more than 20 per cent higher than in January 2021. “What did the Democrats in was inflation,” said Stephen Moore, a former senior economic adviser to Trump.Other economists point out that the administration made some advances for working families, such as temporarily expanding the child tax credit and providing more support for healthcare insurance.Low-wage workers also experienced the fastest real wage growth of any income group under Biden, according to the Economic Policy Institute. More Americans are also in work than when he started his term.Some content could not load. Check your internet connection or browser settings.But much of the Covid-era support was temporary and poorly targeted, according to analysts. The child poverty rate rebounded after initially falling by half, while plans to permanently enlarge social welfare programmes failed.“The administration couldn’t overcome legislative opposition to labour law reform or to raising the federal minimum wage,” said Josh Bivens, chief economist at EPI, adding that the administration’s gamble that its progressive policies would become too popular to remove backfired. “Progressives need to not bank on programmes creating their own constituency.” Despite a sturdy jobs market and stimulus cheques, many of the poorest Americans still feel worse off than when Biden entered the White House. Low-income households spend more of their income on essentials, which jumped the most in price, according to research by Oxford Economics. “The irony of Biden’s presidency was that lower- and middle-income households suffered the most,” said Moore.With savings built up during the pandemic now largely spent, the share of loan balances in serious debt delinquency — defined as late payments of 90 days or more — on credit cards and auto loans are near their highest since the aftermath of the 2008 financial crisis.Despite the Biden administration’s focus on “middle-class Americans”, it has been corporate America that has really boomed, particularly as enthusiasm over artificial intelligence pushed equity prices higher.Though under its chief Lina Khan, the Federal Trade Commission was aggressive in bringing antitrust cases to Big Tech, Trump’s new team — with its ties to tech billionaires such as Elon Musk — is expected to give the sector a freer hand.Economists believe that over time Biden’s industrial strategy — pursued not only through the IRA but also the Chips Act and protectionist policies placed on Chinese competitors — will leave a bigger mark on the American economy. “The balance will shift in favour of Biden as the memory of the inflation shock fades,” said Ian Shepherdson, editor-in-chief at Pantheon Macroeconomics. “The transformations wrought by his investment programmes continue to deliver broad benefits across the whole economy.”The White House estimates that private companies have committed $1tn in investment as part of Biden’s packages — just under half of that has been in electronics and chips.New factories and battery plants have sprouted across the country. Taiwan Semiconductor Manufacturing Co recently started producing advanced four-nanometer chips for US customers in Arizona.“There is now emerging bipartisan consensus on the government’s role in re-industrialisation,” said Daniel Correa, chief executive of the Federation of American Scientists. “Whether we call it industrial strategy or not.” But both the IRA and Chips act have faced setbacks. An FT investigation in August found that 40 per cent of projects of at least $100mn announced within the first year of the laws had been paused or delayed. Labour shortages, permitting problems and local sourcing requirements were cited as obstacles. Some content could not load. Check your internet connection or browser settings.A promised boom in manufacturing jobs has also been absent so far. Job creation under Biden has been driven by the public sector, services, and health and social care. The effort to recreate global industrial supply chains at home more broadly has been criticised by economists for being wasteful and undermining free trade. Recent research by the Peterson Institute for International Economics estimates the average subsidy per job created under the Chips Act could be about twice the average annual salary of US semiconductor employees.The packages are also expected to be trimmed by Trump’s administration, though the prevalence of new investments in Republican states could keep them alive in some form.Some content could not load. Check your internet connection or browser settings.Many believe Biden leaves behind a strong, but highly indebted economy. “Just as Trump inherited a strong economy in 2017, the same is happening in 2025,” said Maurice Obstfeld, senior fellow at the Peterson Institute think-tank. “[But] Biden’s legacy is mixed. His achievements came with collateral damage such as raising inflation, the deficit and protectionist barriers.“His policies either had long lag times, were temporary, or simply did not cut through to voters . . . For now, the winners are in a position to try to write history,” Obstfeld added.Additional data visualisation by Oliver Roeder in New York More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning. Before we start we wanted to let readers know about a special edition of FirstFT Americas which will be landing in inboxes tomorrow morning. In it, FT experts answer readers’ questions about the incoming Trump administration. Now, today’s agenda: US officials race to avert TikTok banChina’s growth exceeds expectations Netanyahu’s cabinet meets to approve ceasefireFine dining in AntarcticaOfficials of the incoming administration of Donald Trump are bracing for a Supreme Court decision before a A law passed in April last year and due to come into force on Sunday mandates TikTok’s Chinese owner ByteDance to sell its stake in the app or face a ban in the US, where the platform has 170mn users, because of national security concerns.But Mike Waltz, incoming national security adviser, told Fox News last night that the president-elect was preparing an executive order to ensure TikTok would continue to operate in the US. A White House official said yesterday the Biden administration does not plan to enforce the ban on Sunday, leaving it up to the Trump administration, though it is not clear if the app will remain online in the absence of a formal extension. The Supreme Court is currently deciding whether to uphold the divest-or-ban law and allow TikTok to go “dark” on Sunday absent a sale, overturn the legislation or pause it to give the justices more time to make a decision. TikTok denies it poses a national security threat and claims the law violates First Amendment protections for free speech. A decision may come later today.Trump, who takes office on Monday, has promised to “save the app” and has called for a delay in the implementation of the law. Yesterday it was reported that TikTok chief executive Shou Zi Chew planned to attend Trump’s inauguration, raising expectations of a deal. ByteDance has refused to sell TikTok’s US operations but this week it was reported that officials in Beijing are discussing using Trump adviser and X owner Elon Musk as a broker in any potential sale.Meanwhile, TikTok’s US rivals are gearing up for a potential land grab if the app is banned. Advertising executives say Meta and YouTube are set to receive a multibillion-dollar boost to revenues if TikTok is banned. Join FT experts and guests on Wednesday for a subscriber-only webinar as they discuss the return of Donald Trump to the White House for a second term. Register for free.And here’s what else we’re keeping tabs on today:Israel-Hamas ceasefire: Benjamin Netanyahu’s security cabinet is set to vote on the ceasefire deal for Gaza. Follow developments here. Congress: Kristi Noem, the nominee for Secretary of Homeland Security, attends a nomination hearing in front of a Senate committee.Companies: State Street, Citizens Financial Group and SLB, the oil services group better known as Schlumberger, report results today. Economic data: The IMF releases its World Economic Outlook update ahead of the World Economic Forum in Switzerland next week. The FT will be running a series of events to coincide with the annual gathering in Davos. Learn more here.How well did you keep up with the news this week? Take our quiz.Five more top stories1. China’s economy grew 5 per cent last year on the back of surging manufacturing, official data released today showed, as companies front-loaded exports in anticipation of higher US tariffs and as Beijing stepped up stimulus efforts. The annual figure, which slightly exceeded economists’ forecasts of 4.9 per cent, trailed last year’s growth of 5.2 per cent. The data provided further evidence of China’s two-speed economy.2. Donald Trump’s Treasury pick said he would deploy America’s economic power against geopolitical foes as he defended the incoming president’s tariff threats and pushed for looser regulations. Billionaire Scott Bessent also said at a Senate confirmation hearing that failure to extend tax cuts would lead to “economic calamity”.More Trump picks: Doug Burgum, nominee for interior secretary, warned that the US could lose the “AI arms race” to China unless it boosted energy generation from fossil fuels.3. Former Bank of England governor Mark Carney has launched his bid to become prime minister of Canada, where voters remain angry at Justin Trudeau’s handling of the economy. Carney, who also ran Canada’s central bank, pledged to make the country’s economy the strongest in the G7. Here’s more from his first campaign rally in Alberta.🎧 Trump threat: In the latest episode of his podcast, Gideon Rachman talks to Michael Ignatieff, the former leader of Canada’s Liberal party, about its newly hostile neighbour.4. A SpaceX Starship rocket has exploded after lift-off from Texas, in a setback for Elon Musk’s $350bn space technology company just hours after a successful launch by rival Blue Origin. Videos posted on social media showed the rocket spectacularly disintegrating in a shower of flames over the Turks and Caicos Islands in the Caribbean. Planes in the area were briefly diverted.5. Scientists have for the first time given a realistic sense of touch to people operating a robotic hand via signals sent from their brain, marking the latest advance in neurotechnology research to help overcome disabilities. The University of Chicago study worked over several years with volunteers paralysed by spinal cord injuries. Here’s more on the findings.Today’s big readSteve Witkoff, right, had no experience of diplomacy until he was sent to the Middle East by Donald Trump More