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    BCA on why Trump’s immigration policies may not mean a tighter jobs market

    An analyst at the firm said that while a smaller labor supply is a likely outcome, this will also reduce labor demand.“Immigrants’ contribution to aggregate demand goes beyond their spending on goods and services,” the firm states.“It also includes spending that takes place on their behalf. For example, while illegal immigrants are ineligible for most government welfare programs, they have access to emergency Medicaid services. They can also collect benefits on behalf of US-born children,” BCA adds.They explain that the construction of multifamily housing to accommodate displaced housing demand can generate $40,000–$80,000 in additional construction per immigrant.They also believe the pace of policy implementation will also matter. BCA acknowledges that a swift deportation campaign could indeed tighten the labor market, but they consider such an outcome unlikely. “The infrastructure to deport millions of workers simply does not exist,” and any slower-paced reduction in immigration growth would likely reduce labor demand more than supply.BCA also argues that the historical relationship between immigration and interest rates supports this view. The U.S., with the highest immigration rates among G3 economies, has historically maintained the highest interest rates, whereas Japan, with minimal immigration, has seen the lowest rates. They believe a reduced immigration rate could, therefore, lead to a lower equilibrium interest rate in the U.S.BCA concludes that the economic implications of Trump’s immigration policies are more complex than a simple tightening of the labor market, with broader impacts on demand and interest rates shaping the outcomes. More

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    Could US tariffs ramp-up deflationary forces in Europe?

    “Even if the EU retaliates like-for-like with reciprocal tariffs, the HICP impact is likely negligible,” Citi economists said in a recent note.  Imports from the U.S. make up just over 10% of euro area goods imports, a quarter of which is energy but this is unlikely to be taxed, the economists said. With consumption goods accounting for just about 6% of total imported U.S. goods in the Eurozone, the import price-to-HICP passthrough is “usually low,” they added.The potential of a 10% blanket US tariff on EU goods and additional measures against China, the biggest source of EU imports, is likely to further weigh on Eurozone economic growth at a time when the single economy is already facing an uphill task to revive growth, the economists said after downgrading Eurozone GDP growth by 0.3%.”This shock to the already-struggling European manufacturing sector could weigh on employment and wages in the tradeable sector and beyond,” the economists added.On the export front, meanwhile, tariffs are likely to hurt US and Chinese demand for Eurozone exports, Citi said, though added that they have previously benefited from trade diversion as US reliance on China has collapsed.A quick look at the impact of tariffs from the prior Trump administration offers clues about the road ahead for the Eurozone. The most significant consequence for Europe from Trump’s previous trade disputes has likely been the surge in Chinese import penetration, which has had “likely sizable disinflationary implications,” the economists said. More

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    How fast will the ECB lower interest rates?

    $75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

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    What is the 2025 economic outlook in a new leadership and policy era

    In a Thursday note to clients, Wells Fargo (NYSE:WFC) strategists outlined the implications of these changes, projecting a mixed but cautious outlook for the year ahead.Central to the forecast is the reintroduction of tariffs as a key economic tool. Wells Fargo assumes that a 5% tariff on all US imports and a 30% tariff on Chinese exports to the US will take effect by mid-2025.While these measures are designed to address trade imbalances, they are expected to disrupt economic growth, both domestically and globally. US economic expansion is projected to slow, with GDP growth forecast at 2.0% for 2025, down from 2.7% in 2024.Inflation, however, is likely to remain elevated, with the core PCE price index forecast at 2.5% for both 2025 and 2026. This environment is expected to prompt the Federal Reserve to continue easing monetary policy, though at a more measured pace, with the fed funds rate projected to reach a terminal range of 3.50%-3.75%.“Trump 2.0 tariffs are likely to disrupt, not upend, the US economy,” strategists led by Nick Bennenbroek said in the note. “Economic expansion is still likely, albeit at a slower pace, while inflation could remain above the Fed’s target as consumers at least partly bear the cost of tariffs.”Internationally, the ripple effects of US tariffs are expected to create divergent economic outcomes. Emerging markets with strong trade linkages to the US, such as Mexico and China, are particularly vulnerable.Mexico, reliant on US demand for nearly 80% of its exports, faces the prospect of a recession in 2025. China, while possessing policy tools to mitigate the impact, is forecast to experience subdued growth of 4.0%.In contrast, more insulated economies like India and Brazil, driven by domestic demand, may show relative resilience and even benefit from shifting global supply chains.“Brazil and India are relatively closed to trade as exports to the US represent an insignificant portion of Brazil’s economy and a miniscule fraction of India’s output,” Wells Fargo notes. “Rather, they are powered by domestic demand and investment, leaving both economies somewhat sheltered from rising protectionist sentiment.”Currency markets are also expected to reflect these changes, with the US dollar positioned for strength. The report attributes this to a combination of a less dovish Federal Reserve, more aggressive easing by foreign central banks, and economic uncertainty in key trading partners.Emerging market currencies, particularly those in Latin America and EMEA, are forecast to face significant depreciation pressures.Meanwhile, the bank expects the euro to drop below parity relative to the dollar, while currencies with more closed economies – like the Indian rupee – or linked to hawkish central banks – such as the Japanese yen or the Australian dollar – “can be more resilient in 2025.” More

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    Here’s what investors can expect from the ECB this week

    The bank explained that the decision will likely be influenced by updated macroeconomic projections, which are expected to show inflation reaching the 2% target by early 2025.UBS forecasts the ECB will continue cutting rates by 25 basis points at subsequent meetings in January, March, April, and June, bringing the deposit rate to a neutral level of 2% by mid-2025. This gradual approach is said to reflect the assumption that Eurozone labor markets will remain resilient, meaning wage growth will only decline slowly. “However, this argument cuts both ways: If labour markets were to weaken more visibly, wage growth were to come down much faster, or GDP were to perform weaker than our base case scenario, the ECB would have to cut faster and below neutral,” added UBS.The ECB is also expected to unveil updated macroeconomic projections, including forecasts for 2027, for the first time. UBS predicts the 2024 inflation forecast will be revised slightly lower to 2.4%, while the 2026 headline inflation forecast will rise to 2.0%. The investment bank believes GDP growth projections are likely to remain subdued, with a modest uptick expected in 2026 due to improved technical assumptions.Another key focus of the meeting will be the ECB’s forward guidance. UBS anticipates the ECB will maintain its data-dependent approach but may drop references to keeping rates “sufficiently restrictive,” signaling a shift in tone as inflation trends toward the target.UBS also flagged potential impacts on bond and currency markets. They project German 2-year yields to decline further and maintain a medium-term bearish outlook on the euro, targeting EUR/USD at 1.04 by the end of 2025. However, they suggested fading any near-term EUR rebounds toward 1.07, noting vulnerability to U.S. policy shifts under the incoming Trump administration. More

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    Trade war fallout could trigger deep Eurozone rate cuts, Pimco warns

    $75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

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    EU will demand early fish deal in UK reset talks

    $75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

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    US clears export of advanced AI chips to UAE under Microsoft deal, Axios says

    Microsoft (NASDAQ:MSFT) invested $1.5 billion in G42 earlier this year, giving the U.S. company a minority stake and a board seat. As part of the deal, G42 would use Microsoft’s cloud services to run its AI applications.The deal, however, was scrutinized after U.S. lawmakers raised concerns G42 could transfer powerful U.S. AI technology to China. They asked for a U.S. assessment of G42’s ties to the Chinese Communist Party, military and government before the Microsoft deal advances.The U.S. Commerce Department, Microsoft and G42 did not immediately respond to Reuters’ requests for comment.The approved export license requires Microsoft to prevent access to its facility in the UAE by personnel who are from nations under U.S. arms embargoes or who are on the U.S. Bureau of Industry and Security’s Entity List, the Axios report said.The restrictions cover people physically in China, the Chinese government or personnel working for any organization headquartered in China, the report added. U.S. officials have said that AI systems could pose national security risks, including by making it easier to engineer chemical, biological and nuclear weapons. The Biden administration in October required the makers of the largest AI systems to share details about them with the U.S. government.G42 earlier this year said it was actively working with U.S. partners and the UAE’s government to comply with AI development and deployment standards, amid concerns about its ties to China. Abu Dhabi sovereign wealth fund Mubadala Investment Company, the UAE’s ruling family and U.S. private equity firm Silver Lake hold stakes in G42. The company’s chairman, Sheikh Tahnoon bin Zayed Al Nahyan, is the UAE’s national security advisor and the brother of the UAE’s president. More