Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU, a political project conceived to remove trade barriers, has been raising tariff walls at its fastest rate in 15 years. But just as fast as the defences are built against cheap Chinese imports, fresh storms blow the bloc off balance again. Donald Trump’s threat to impose levies of up to 60 per cent on Chinese goods would, for instance, put an even higher tariff wall around the US than anything the EU has planned. The effect, if the US president follows through, would be to divert Chinese goods from the US to the EU — forcing Brussels to in turn consider hitting back with even tougher defensive measures.It is an impossible situation for a union that has taken pride in its free-trading instincts. Every barrier it erects can save some domestic jobs but will also reduce the competitiveness of other domestic industries by raising the price of imports.With China now accounting for 30 per cent of global industrial output, the ripple effects will be considerable on EU products ranging from electric vehicles to Italian tomato paste.Vulnerable industries, such as steel and glass fibre makers, complain the EU has not been building trade defences fast enough or high enough to save them. “We are close to a tipping point for many industries,” said Laurent Ruessmann, a partner with RB Legal and trade defence expert.   On the other hand, those who want cheap Chinese inputs to keep their own product prices down, such as paint makers, have lobbied against tariff measures. The EU has put duties on titanium dioxide, a key ingredient, leaving paint makers worried they will have to absorb the cost or lose sales. Simon Evenett, professor of geopolitics and strategy at IMD Business School, said tariffs always ended up costing consumers or other businesses.  “Europe’s dilemma is either to sacrifice jobs downstream by slapping tariffs on Chinese imports or watch EU producers shrink by doing nothing. When it comes to protectionism, someone’s ox always gets gored.”However, Aegis Europe, which represents heavy industries such as steel and chemicals, argued that the EU was sitting on the fence. Trade defence measures cover far less of its EU imports than other trading blocs, according to Aegis. The number of tariffs has grown to their highest level since 2009, with 141 in force in 2023. But rebased against total imports, the US, Australia and Canada have more than 10 times larger protective shields. “Claims that EU manufacturers use trade defence as a protectionist tool do not stand up to scrutiny,” it said in a report. Brussels has responded. In a move asked for by Aegis, it now automatically registers imports when a trade investigation is opened. It can then backdate tariffs if it wishes, deterring stockpiling during the months-long probe to beat the price rises.But even with tariffs in place, China has tended to find ways around them. Since the EU put anti-subsidy duties in 2010 on glass fibre — used in construction, wind turbines and other industries — Chinese producers have doubled their market share. After the tariffs were imposed, imports started surging from Egypt. China’s state-owned Jushi had opened a plant there, and Brussels eventually put tariffs on Egypt too. Ludovic Piraux, chief executive of producer 3B and president of Glass Fibre Europe, said the tariffs were ultimately too low. “Companies operating within a market economy like ours cannot withstand the relentless attacks from Chinese state-subsidised competitors,” he said.The steel industry is feeling the squeeze most — hobbled by weak demand, high energy costs and regulation forcing it to invest to eliminate carbon emissions.Steel production hit its lowest ever level — 128mn tonnes — in 2023, according to Eurofer, the lobby group. Trump put tariffs on the metal in his first term in an effort to protect his voters in the industrial heartland of the US, and could reactivate them within days of his return.Axel Eggert, Eurofer director-general, said: “We have to decide if we want a European steel industry or not.”Carmakers — themselves now partially protected by tariffs from a surge of cheap, allegedly subsidised Chinese electric vehicle imports — needed EU steel, Eggert argued. While they might be tempted by cheaper Chinese offerings to lower their costs, “as soon as we are gone, the Chinese will raise prices”. The EU might be tempted to reopen talks with the US on a “green steel club”, which would allow tariff free trade between members while those outside pay.This was once dismissed by Brussels as incompatible with World Trade Organization rules. But senior EU officials now hint that they could be flexible in interpreting the rules. In this hostile environment, even good students of trade multilateralism may find it impossible to stick to their principles. More

Gaming revenue last year reached 226.8 billion patacas ($28.35 billion), up 23.9% from 2023, according to data published by the Gaming Inspection and Coordination Bureau on Wednesday. That topped the government’s estimate of 216 billion patacas, but trailed the 292.5 billion patacas logged in 2019.Notably, revenue fell 2.0% in December, the only month registering a year-on-year decline in 2024.The drop coincided with tighter security surrounding a three-day visit by Chinese President Xi Jinping to mark a quarter century of Beijing’s rule. Macau returned to Chinese rule on Dec. 20, 1999, governed under the same “one country, two systems” system as nearby Hong Kong.During his trip, Xi urged Macau to have the “courage” to diversify its economy by establishing new industries and better connecting with the mainland’s national developing strategies. That includes increased economic integration with the Greater Bay Area, a region in the Pearl River delta linking cities such as Hong Kong and Guangzhou. To boost its global competitiveness, Xi said Macau should further promote cooperation with Portuguese-speaking countries and actively participate in Beijing’s Belt and Road Initiative, an ambitious infrastructure plan aimed at boosting trade between China and the rest of the world. Macau, a special administrative region of China, is the only place in the country where gambling is legal. Its economy is heavily reliant on casinos, which contributes about 80% of tax revenues.But China’s long-term anti-corruption drive has reined in gambling revenues from the high-roller VIP sector, which were further depressed during the pandemic years when strict travel restrictions sharply curtailed visits from mainland tourists. ($1 = 7.9990 patacas) More

1. Port workers strike: a possible port workers strike on Jan. 15 — stemming from unresolved issues regarding automation in port operations — disrupting supply chains and potentially impacting GDP by approximately $3.1 billion per day.2. Downward revisions to payrolls may force Fed pivot: The upcoming benchmark revisions could reveal a downward adjustment of around 68,000 jobs per month, indicating a slowing job growth rate that may prompt a dovish pivot from the Fed.3. Shake up at the Fed:  The potential resignation of Vice Chair for Supervision Michael Barr could lead to significant changes in leadership, with Governor Michelle Bowman poised to take over his role and Kevin Warsh potentially being appointed as a new governor.4. Broadening out of stock market rally unlikely: despite investor hopes for a broader market rally, concentration within the index may persist, Wolfe Research said. This trend reflects a longer-term pattern where the S&P 500 has outperformed the equal-weight index in seven of the last ten years.5. President-elect Trump may opt for less harsh tariffs: after initial market reactions to tariff headlines, Trump might end his pursuit of significant tariffs. This would defy widespread investor expectations, as many anticipate increased tariffs on Chinese goods and others. More

Will GDP Growth Be Above Consensus? Goldman forecasts a 2.4% GDP growth for 2025, surpassing the 2.0% consensus. They attribute this to robust private domestic demand and business investment supported by artificial intelligence and federal incentives like the Inflation Reduction Act.Will Consumer Spending Remain Resilient? Yes, according to the investment bank. They expect consumer spending to rise 2.3% in 2025, driven by solid real income gains, a strong labor market, and wealth effects from rising equity markets.Will the Labor Market Continue to Soften? Goldman doesn’t believe so. The unemployment rate is expected to dip slightly to 4% by the end of 2025. Goldman sees strong demand growth and slowing immigrant labor supply contributing to this stability.Will core PCE inflation net of tariff effects fall below 2.4% year-on-year? Goldman anticipates core PCE inflation to fall to 2.1% by year-end 2025, barring tariff impacts, as wage pressures ease and catch-up inflation subsides.Fed Rate Cuts? Goldman predicts three rate cuts at a quarterly or every-other-meeting pace in March, June, and September 2025. This dovish stance reflects the bank’s confidence in inflation’s decline and tempered impacts from potential tariff policies.Will the Neutral Rate Estimate Increase? Goldman Sachs economists anticipate the Fed will raise its median neutral rate estimate to 3.25% or higher, reflecting broader demand influences.Will President-elect Trump try to fire or demote Fed Chair Powell? The bank doesn’t think so. They stated that the impression they have “is that the White House concluded during Trump’s first term that it cannot remove the Chair because the law only permits this for cause, and courts are unlikely to agree that failing to deliver rate cuts meets this standard.”Immigration Policy Changes? Net immigration is forecast to decrease to 750,000 annually, aligning with tighter policies under the Trump administration.Tariffs and Trade Tensions? Goldman expects higher tariffs on Chinese imports but avoids a universal tariff scenario, citing economic and political risks.Federal Budget Concerns? Deficit reduction is unlikely, according to the bank, with tax cuts and defense spending offsetting fiscal constraints.  “We also expect federal spending growth to rise somewhat, particularly on defense. A modest gain in tariff revenue, as noted earlier, would partly offset these changes,” says Goldman. More

DUBAI (Reuters) – Abu Dhabi’s Mubadala Investment Company accounted for about 20% of the almost $136.1 billion spent by sovereign wealth funds worldwide last year, overtaking Saudi Arabia’s wealth fund amid a surge in spending from Gulf countries. Mubadala and its subsidiaries deployed $29.2 billion in 2024, up from $17.5 billion invested in 2023, based on a preliminary annual report from industry specialist Global SWF, which tracks the world’s sovereign investment funds. Saudi Arabia’s Public Investment Fund lost its ranking as the world’s most active sovereign wealth fund after it cut its investment spend by 37% to $19.9 billion in 2024 from $31.6 billion the previous year, according to the report.PIF Governor Yasir Al-Rumayyan said in October the sovereign wealth fund was more focused on the domestic economy and aiming to reduce the fund’s international investments.Still, the Gulf’s sovereign wealth funds controlled by governments of Abu Dhabi, Qatar and Saudi Arabia “invested a record” $82 billion in 2024, a rise of more than 10% from 2023, the report said. Other groups such as Canada’s Maple 8, the Singaporean funds or the Australian superannuation funds were more active than in 2023, but remained below their peaks in 2021-2022, the report added.Overall sovereign wealth funds’ assets under management rose 6.1% this year to $13 trillion, a historical peak, and public pension funds rose 6% to reach $25 trillion. Norway has the world’s biggest sovereign wealth fund. Sovereign investments into digitisation, which include data centres, digital infrastructure, artificial intelligence and space investing, reached $27.7 billion in 2024.Abu Dhabi, a wealthy oil producer and longtime security partner of the U.S., is in a race to become an AI leader amid rising competition in the region as Qatar and Saudi Arabia pitch themselves as potential AI hubs outside the United States.The push is led by the government-backed G42 and MGX, a firm in which Mubadala is a partner. Emirati officials believe the Gulf state’s bet on artificial intelligence will strengthen its international clout by making it a key economic actor long after demand for oil has dried up.Real estate and private equity investment volumes by sovereign wealth funds were unchanged, while infrastructure and credit continued to rise, the report said.Deal activity by state funds rose 5% in 2024 to $216 billion. Average deal size rose to a six-year high of $370 million. More

The average price of new homes across 100 cities edged up 0.37% from a month earlier, compared with the 0.36% rise in November, according to data from property researcher China Index Academy.On a year-on-year basis, the average price rose 2.68% in December, versus 2.40% growth in the previous month.Official data for home prices will be released by China’s statistics bureau on Jan. 17.China’s policymakers in recent months doubled down on their efforts to revive the sector, which crashed in 2021 after a government-led campaign to rein in indebted developers left them severely cash-strapped.Since September, measures aimed at encouraging homebuying have included cutting mortgage rates and minimum down-payments, as well as tax incentives. More

NEW YORK (Reuters) -Investors are expecting more gains for the U.S. stock market in 2025 after two straight standout years, fueled by a solid economy supporting corporate profits, moderating interest rates and pro-growth policies from incoming President Donald Trump.The benchmark S&P 500 was up 23.31% in 2024, even with a recent speed bump, marking its second-straight year of gains exceeding 20%, lifted by megacap tech stocks and excitement over the business potential of artificial intelligence.The index soared 53.19% over the last two years, the biggest two-year percentage jump since 1998. Investors are more confident about the economy than this time a year ago, with consumers and businesses having absorbed higher interest rates and the Federal Reserve now lowering them – albeit by not as much as hoped. Corporate profits are also expected to be strong, with S&P 500 earnings per share projected to rise 10.67% in 2025, according to LSEG.On the other side of the ledger, inflation remains stubborn, and Wall Street is wary of a rebound that could lead the Fed to change course on its easing cycle. Indeed, stocks pulled back sharply earlier in December after the central bank projected fewer rate cuts next year as it braced for firmer inflation.Such prospects could become more likely if Trump implements tariffs on U.S. imports that lead to higher consumer prices. Stock valuations, meanwhile, are around their steepest levels in more than three years, leaving greater potential for turbulence.”We’ve been on quite the tear coming off the lows back at the end of 2022. It’s been pretty eye-watering,” said Garrett Melson, portfolio strategist at Natixis Investment Managers. “Animal spirits … are certainly running pretty wild right now, but you might need to temper that a little bit as you start to move through the year,” said Melson, who thinks the stock market could still produce solid gains of around 10% in 2025 if not the returns of the prior two years.Wall Street firms are mostly projecting gains for the market next year, with S&P 500 year-end targets ranging from 6,000 to 7,000 points. The index ended 2024 at 5,881 on Tuesday.Optimistic investors can point to a bull market that is neither old nor over-extended by historic measures.The current bull market for the S&P 500 that began in October 2022 is less than half as long as the average length of the 10 prior ones, according to Keith Lerner, co-chief investment officer at Truist Advisory Services. The S&P 500’s roughly 64% gain during this latest run trails the 108% median gain and 184% average rise of the prior bull markets, according to Lerner.”If you zoom out a little bit, yes, we have a lot of gains, but if you look at a typical bull market, it suggests that we still have further gains to go,” Lerner said.Other historic signs also bode well. The S&P 500 has gained an average of 12.3% following the eight instances of back-to-back 20% annual gains since 1950, according to Ryan Detrick, chief market strategist at Carson Group, compared to a 9.3% overall average increase over that time. The index increased six of the eight times. ECONOMY WEATHERING RATES Bolstering the upbeat sentiment is the prevailing sense on Wall Street that the economy has weathered the rate hikes the Fed implemented starting in 2022 to quell inflation.A Natixis Investment Managers survey conducted in recent weeks found 73% of institutional investors said the U.S. will avoid a recession in 2025. That is a sharp turnaround from a year ago, when 62% projected such a downturn in the coming year. Citigroup (NYSE:C)’s economic surprise index, which measures how economic data performs versus expectations, has been solidly positive for the past two months, another rosy sign for investors.Adding to expectations of a solid economy, Trump is expected to pursue an agenda that includes tax cuts and deregulation that supports growth.”We’re leaving 2024 on pretty good footing, and we think there is some re-acceleration in 2025,” said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute. “Markets tend to front-run the economy, so they will position for that economic re-acceleration sooner rather than later.”However, stocks are also leaving 2024 at elevated valuations: the S&P 500 was trading at 24.82 times expected earnings over the next 12 months, according to LSEG. That is well above its long-term average of 15.8, and not far from the 22.6 level it reached earlier this month, its highest since early 2021. Investors maintain that valuations can stay high for long periods and do not necessarily indicate imminent declines. But future gains may rest more on earnings growth, while higher valuations could make stocks more easily rattled by any disappointments.Risks include policy uncertainty such as Trump’s expected push to raise tariffs on imports from China and other trading partners, which analysts estimate could hurt corporate profits. Higher tariffs could also increase inflation, which is another worry for investors. The pace of inflation has fallen dramatically since hitting 40-year highs in 2022, but remains above the Fed’s 2% target. The latest reading of the consumer price index found a 2.7% annual inflation rate.”How low we can get rates is really going to be dependent on how low we can get inflation,” said Michael Reynolds, vice president of investment strategy at Glenmede. “If we see inflation settling out to the 3-ish percent range, we think the Fed’s not going to be as aggressive next year.”Glenmede is recommending investors take a neutral posture on overall portfolio risk, including for equities. “Investors should be what I would call cautiously optimistic,” Reynolds said. “We … have an economy that’s showing signs of late-stage expansion alongside valuations that are pretty rich.” More