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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Mongolia’s prime minister has resigned after losing a confidence vote, amid public anger at his son’s lavish spending, fuelling political uncertainty in a central Asian economy with vast mineral wealth.Luvsannamsrain Oyun-Erdene, the Harvard-educated reformist who has led Mongolia since 2021, gained only 44 of the 64 votes he needed from lawmakers in a vote held in the early hours of Tuesday. Oyun-Erdene called the vote last week amid divisions in his party and as protests erupted over his son’s luxury lifestyle.His Mongolian People’s party, which has been in a coalition government with two other parties since elections a year ago, is expected to try to form a government in the coming days.The political turmoil leaves much at stake for Mongolia, which emerged from a single-party political system under socialist control in the 1990s and only enlarged its parliament last year. Oyun-Erdene has long sought investment from western mining groups to tap the country’s vast deposits of copper, uranium and other critical minerals, backing that could also give Ulaanbaatar a buffer against Beijing and Moscow. Crowds gathered last month in Ulaanbaatar in protest against the lavish lifestyle of the prime minister’s son More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The global economy is heading into its weakest growth spell since the Covid-19 slump as President Donald Trump’s trade war saps momentum in leading economies including the US, OECD forecasts showed. The organisation on Tuesday slashed its outlook for global output and the majority of the G20 leading economies as it warned that agreements to ease trade barriers would be “instrumental” in reviving investment and avoiding higher prices.Global growth is expected to be 2.9 per cent in 2025 and 2026, the OECD said in its latest full outlook. The figure has exceeded 3 per cent every year since 2020, when output plunged because of the pandemic.US growth will slow particularly sharply, sliding from 2.8 per cent last year to just 1.6 per cent in 2025 and 1.5 per cent in 2026, while a bout of higher inflation will prevent the Federal Reserve from cutting rates this year, the OECD said. The latest assessment represents a downgrade to its March interim forecasts, which preceded Trump’s “liberation day” tariff announcements on April 2. Even then, the OECD warned of a “significant toll” stemming from the levies and associated uncertainty over policy. Trump has since partially climbed down on some duties, but the increase in the average US effective tariff rate is still “unprecedented”, from 2.5 per cent to above 15 per cent — the highest since the second world war, the OECD noted. The Paris-based body also trimmed 2025 forecasts for G20 countries, including China, France, India, Japan, South Africa and the UK, compared with its March interim outlook.  Some content could not load. Check your internet connection or browser settings.Álvaro Pereira, the OECD’s chief economist, said countries urgently needed to strike deals that would lower trade barriers. “Otherwise, the growth impact is going to be quite significant,” he said. “This has massive repercussions for everyone.” Compared with the OECD’s last full outlook in December, growth prospects for almost all countries have been downgraded, said Pereira. “Weakened economic prospects will be felt around the world, with almost no exception,” the OECD said. Adding to the drag on growth and investment is uncertainty about the direction of global trade policy. US tariff moves have fluctuated wildly, with Trump imposing swingeing levies on China before partially dialling the measures back, while threatening hefty tariffs on other economies including the EU. Trump has also vowed to impose a range of sectoral barriers, including a doubling of levies on steel and aluminium imports to 50 per cent. The OECD prepared its forecasts on the assumption that tariff rates as of mid-May would be sustained, despite setbacks including a court judgment last week that found Trump had exceeded his authority in imposing “liberation day” duties. Partly as a result, US inflation is now expected to rise to nearly 4 per cent by the end of 2025 and remain above the Fed’s target in 2026, meaning the central bank will probably wait until next year before lowering interest rates, the OECD said. Recent indicators pointed to a “notable cooling” of real GDP growth in the US alongside a significant increase in inflation expectations, it warned. Altogether, the OECD’s outlook for this year has been trimmed for about three-quarters of the G20 members compared with its March interim forecast. Chinese growth will slow from 5 per cent last year to 4.7 per cent in 2025 and 4.3 per cent in 2026, according to the new outlook, while the Eurozone will expand by just 1 per cent this year and 1.2 per cent in 2026. Japan’s economy will grow by just 0.7 per cent and 0.4 per cent this year and next respectively. The UK economy was predicted to expand by 1.3 per cent this year and 1 per cent in 2026, a downgrade on expected rates of 1.4 and 1.2 per cent respectively in March. Global trade will expand by 2.8 per cent in 2025 and 2.2 per cent in 2026, sharply lower than OECD predictions in December. Fiscal risks are rising along with trade tensions, the OECD warned, with demands for more defence expenditure set to add to spending pressures. “Historically elevated” equity valuations are increasing vulnerabilities to negative shocks in financial markets. A long spell of weak investment has compounded the longer-term challenges facing OECD economies, and this is further sapping the growth outlook. “Despite rising profits, firms have shied away from fixed-capital investment in favour of accumulating financial assets and returning funds to shareholders,” the OECD said. “Boosting investment will be instrumental to revive our economies and improve public finances.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. The US dollar weakened again yesterday, and (as Robin Brooks of Brookings noted) this happened even as Treasury yields rose, increasing the spreads over other developed countries’ bonds. This is an unusual combination, and suggests global repositioning and hedging of dollar assets is continuing. But perhaps you have a different explanation? If so, email it to us: [email protected] slightly ominous manufacturing reportThe dip in the ISM Manufacturing index, to 48.5 in May from 48.7 in April, was mild (levels under 50 indicate contraction). But as we look at the data more closely, we detect a whiff of stagflation on the goods side of the economy.The survey showed a big fall in inventories, which could signal an end of companies’ frontloading orders to avoid the price impact of tariffs. If so, it won’t be too long before manufacturers and merchants will have to restock at higher prices, and pass on the increased costs to consumers.Meanwhile, the employment and new orders indices ticked up slightly but stayed in contraction territory. The prices paid index, while pulling back 0.4 percentage points from April, still clocked in at a feverish 69 per cent. Raw materials prices are still rising fast. Manufacturers highlighted the rise in steel and aluminium prices, even before President Donald Trump doubled tariffs on the two major inputs to 50 per cent from 25 per cent on Friday. Lower energy prices have helped offset some cost pressures on businesses, but this only has so much room to run, Matthew Martin at Oxford Economics points out.The price index is “consistent with core goods inflation reaccelerating from around zero in April to 2 per cent to 3 per cent later this year”, according to Oliver Allen of Pantheon Macroeconomics. That means the Federal Reserve is also unlikely to come to the rescue of the sector.Overall, the numbers are softish but not terrible, and manufacturing is a much smaller portion of the economy than services. But the trends are poor, and come at a moment when other soft spots are appearing in a generally solid economy, in areas from housing to durable goods orders. Someone bring us some good news, please. (Kim)Quantitative easing by bankLast week we wrote about proposed reforms to the supplementary leverage ratio, which would allow US banks to hold less capital against Treasuries. But we didn’t talk about the implications for inflation and the money supply, which matter. New money is mostly created by commercial banks. When they lend, they create money in the form of a deposit in the borrower’s account. The bank’s balance sheet increases on both sides: the new deposit liability and a new loan asset. Some economists have argued that bank capital rules, such as the SLR, slow commercial bank money growth. Here’s Steve Hanke of Johns Hopkins:In the 60 years prior to the great financial crisis, financial assets in the banking system were growing 7-8 per cent a year. What has happened since the GFC . . . the growth in financial assets in the banking system has shrunk, and averaged 4.4 per cent growth per year . . . [Because of regulations like Dodd-Frank and Basel III] banks stopped extending as many new loans, and were not rolling over old loans . . . That is why we had quantitative easing . . . the Fed stepped in to mitigate the damage that had been done by the regulations, because money supply growth had been slowing.It is possible that, were the SLR requirements loosened, banks would simply buy more Treasuries. But the banks could also put the freed-up capital behind new loans, leading to more economic activity. Brian Moynihan, CEO of Bank of America, says this is what would happen in a recent call with investors:The SLR requires us to hold capital at a level against riskless assets and Treasuries and cash. That doesn’t make a lot of sense . . . [reform] will help us provide liquidity to our clients, both in good times and times of stress. Our cash and government-guaranteed securities and government-issued securities is $1.2tn of our balance sheet right now. So think about capitalising that under the SLR at 5 per cent or whatever it is, and that’s a big number.Many observers (including several conspiracy-minded Unhedged readers) believe that SLR reform is quantitative easing by other means. If it leads to banks holding more Treasuries, it would depress yields; if it led to more lending, it would provide an economic stimulus. Both would add to the money supply.But there are important differences. To the degree SLR reform incentivises bank Treasury purchases, it will probably mostly affect short-duration Treasury yields, as opposed to the benchmark 10-year Treasury yield, due to banks’ preference for buying shorter-duration securities and the Treasury’s present preference for issuing them. And the 10-year yield has an important link to the real economy because it helps determine (among other things) mortgage rates.And bank Treasury buying will not sway the Treasury market in the same way as Fed buying, says Joseph Wang at Monetary Macro:When the Fed does QE, they are essentially saying to the market: “We will buy $100bn a month.” The Fed doesn’t care what the rate is when they do that. But if banks were to do this they would be more discretionary. There would be no rule about $100bn a month. They would buy more opportunistically . . . meaning the interest rate impact would be smaller.Remember, as well, that banks’ commercial lending decisions are determined not just by capital roles but by the economy. They will only lend when there are creditworthy companies that need more credit. Regulators can’t create more of those by fiddling with a ratio.(Reiter and Armstrong)Two good readsTacos económicos y tacos politicos.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Chinese tech companies designing their own advanced chips for manufacturing in Taiwan are set to be the hardest hit by new US restrictions on software tools.Smartphone maker Xiaomi is first in line to be affected, according to people with knowledge of the matter, after a US directive last month instructed electronic design automation (EDA) groups to stop supplying their technology to China.Xiaomi unveiled a breakthrough self-designed mobile processor in May. Its chip is on a leading-edge 3-nanometre node of miniaturisation and is made in Taiwan with a mix of licences and tools from now-restricted US EDA companies. The world’s third-largest smartphone maker has spent years developing its proprietary silicon, produced by Taiwan Semiconductor Manufacturing Company. Xiaomi chair Lei Jun said at a launch event that its new XRING O1 chip would be used in the group’s latest smartphones. While such chips will only account for a small portion of handset sales initially, he envisions using them for all future high-end smartphones and tablets, according to people familiar with the company’s plans.Other Chinese companies also using US EDA tools and TSMC’s contract manufacturing for their self-designed chips include the world’s biggest computer maker Lenovo and bitcoin mining specialist Bitmain, according to industry insiders.Xiaomi, Lenovo and Bitmain did not respond to requests for comment.Full details of the ban are yet to be released, but it is unlikely to lead to existing licences being revoked. Instead, Chinese companies would be cut off from future updates and the technical support crucial for their chips to continue being manufactured at Taiwanese factories that use the latest US systems, according to the same people.TSMC is, in effect, banned by US restrictions from making advanced AI chips for Chinese companies, but smartphone and tablet categories, and other less advanced processors, have generally been exempted.Big Tech groups in China, such as Alibaba and Baidu, have also designed their own chips, but the impact of the EDA ban on them is at present unclear.The latest move by the Bureau of Industry and Security, the arm of the US commerce department that oversees export controls, extends chip industry restrictions to design software and represents a further tightening to restrict China’s ability to develop advanced technologies. However, some industry observers argue that the restrictions may have come too late, as Chinese EDA makers, led by Empyrean Technology, have already developed a rival ecosystem of software increasingly used by Chinese chipmakers.Huawei, the Chinese tech group that has been under US sanctions since 2019, has invested heavily in developing its own EDA tools in its chip development work, as well as supporting local suppliers such as Empyrean to build alternatives. While these are not yet as mature as the products from EDA suppliers Synopsys or Cadence of the US, they are “usable”, especially for chip production at 7nm and above, say industry insiders.The new ban means Empyrean can expect higher demand for software tools that cover the full circuit design process, including editing, simulation and optimisation. Primarius Technologies is another Chinese EDA provider, while Semitronix specialises in electrical testing to improve production yield. The share prices of all three jumped after the Financial Times reported the new restrictions.Meanwhile, Chinese start-ups have been using localised versions of hacked US EDA software.“It is very easy to hack into the system to get the support you need, and the underlying algorithm to build innovation on top of it,” said one semiconductor analyst, who declined to be named. “This is the reason why Synopsys and Cadence have seen weaker China demand than capacity growth. Lots of customers have been using it without paying,” he added. The latest US restrictions are expected to push more Chinese companies into using hacked software, as well as switching to local suppliers for both EDA and chip manufacturing.Additional reporting by Ryan McMorrow in Beijing More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the chair and chief executive of BlackRockThe global economy is in a strange place: we know more about the next seven years than the next seven days. For nearly two months, I’ve been travelling around the world and hearing the same question: what’s going to happen with tariffs? There are only guesses. The worst-case scenario is bleak: supply shocks, spiralling inflation, economic slowdown. But at this point, the guessing itself has become a commodity, priced in, speculated to death, endlessly churned through headlines.That’s the seven-day story. The seven-year story is quieter, but far more consequential. The Trump administration’s tariffs are the symptom of a backlash to the era of what might be called “globalism without guardrails”. Global GDP grew more since the fall of the Berlin Wall in 1989 than in all recorded history before it. But the benefits weren’t evenly shared. S&P 500 investors saw a return of more than 3,800 per cent. Rustbelt workers did not.So it’s no surprise that this model of globalisation is now coming apart. But its proposed replacement — economic nationalism behind sealed borders — isn’t any more convincing. The real question here is what replaces the model that led us to this point. And the answer is coming into focus. It’s neither globalism nor protectionism, but a blend: open markets with national goals — and workers — in mind.At the heart of this new model are the capital markets: exchanges where people invest in stocks, bonds, infrastructure, everything. Why? Because markets are uniquely suited to transforming global growth into local wealth — even though, historically, that hasn’t always happened. Under globalisation, money often chased returns around the world without necessarily benefiting the people back home. We should still want capital to move freely towards opportunity — that’s what makes markets efficient. But that doesn’t mean countries can’t steer more of that capital home. In a more nationally attuned model, markets channel citizens’ savings into local businesses and infrastructure. The gains flow back to people, helping them afford homes, education, retirement. Put simply: people will fuel their country’s economic growth, and own a piece of it.   The first step? Helping more people become investors. This is the deeper shift I’m seeing in the economy. Governments are rethinking whom markets are for. For decades, they primarily served countries’ wealthiest citizens and largest institutions. Now, countries are democratising markets recognising that the same factory worker left behind by globalisation can be an investor, too.Take Japan. Until recently, it had no tax-incentivised way to invest for retirement. Now its Nisa programme is booming — enrolment surpassed 25mn last year. Meanwhile, lawmakers in the US are weighing a market-based twist on baby bonds: an investment account for every American at birth. Even a modest deposit could grow, by the age of 50, into a retirement cushion or college fund.But creating more investors is only half the battle. Every market has two sides: the people who invest, and the places where capital gets put to work. Ensuring it’s put to work domestically is hard, and in Europe, for instance, it has triggered an economic reckoning. Capital can’t fuel growth if it’s trapped in bureaucracy. Yet the EU operates under 27 different legal systems. And even if you navigate that red tape and decide to invest — say, in an energy company — it can take 13 years just to permit a power line. You might back that project to meet soaring demand from data centres, but if those centres are training artificial intelligence, it triggers an entirely new layer of regulation. The result is paralysis. Europeans save more than three times as much of their income as Americans, but invest far less of it. However, the ground in Europe is shifting. There’s growing momentum to remove the barriers holding capital back: faster permitting, less red tape on AI, a single regulatory framework instead of 27, and, most critically, a true savings and investments union. If I were an EU politician, that union would be my top priority. Investors will be watching closely to see if the reforms stick. Of course, expanding markets won’t fix everything. Unchecked, financialisation can fuel inequality. That was the first draft of globalisation: enormous wealth, unevenly distributed, with little thought for who benefited — or where. What’s emerging now is globalisation’s second draft, a re-globalisation built not just to generate prosperity, but to aim it towards the people and places left behind the first time.  More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The dollar slid towards a three-year low and US government bonds came under pressure on Monday as weak manufacturing data combined with growing warnings over the sustainability of the country’s debt pile to unnerve investors.The dollar was down 0.7 per cent against a basket of its trading partners, taking it close to the three-year low it hit in the wake of President Donald Trump’s “liberation day” tariff blitz in early April. The blue-chip S&P 500 index also dipped after an ISM survey of purchasing managers in the manufacturing sector came in weaker than expected at 48.5 for May — below the 50 level that separates expansion and contraction. The stock benchmark then regained some ground to close the session 0.4 per cent higher.Gordon Shannon, a fund manager at TwentyFour Asset Management, said the ISM data provided a “hint of tariff uncertainty’s impact on US growth”.Francesco Pesole, a forex strategist at ING, said the survey was adding pressure to “already very weak dollar momentum”, compounded by “soft” demand for US Treasuries and a re-escalation in trade tensions.The yield on 30-year US government bonds rose 0.03 percentage points to 4.97 per cent as the price of the debt fell, in the first trading after Treasury secretary Scott Bessent moved to reassure the markets that the country was “never going to default”, amid growing warnings over debt sustainability.JPMorgan Chase chief executive Jamie Dimon had warned on Friday that the US bond market could “crack” under the weight of Washington’s rising debt load.The ISM survey was a weaker showing than the previous month, and the fourth consecutive fall in the index, in the latest sign that Trump’s unpredictable trade war was weighing on the world’s largest economy. The US and China have traded accusations in recent days that the other side was violating their trade truce.The survey also revealed slowing deliveries, as an index based on supplier delivery times climbed to its highest level since June 2022.“The confusion of trade policies is making it near-impossible for supply managers to source goods efficiently,” said Joe Brusuelas, chief economist at tax and consulting firm RSM US.“That tells me that we may run into bottlenecks in terms of production, leading to shortages.”Imports also declined sharply and producers drew down the inventories they had amassed over several months of stockpiling ahead of the new trade levies. Economists warned that these diminishing stockpiles provided only a temporary shield to rising import costs. “You can only rely on that frontloading for so long,” said Veronica Clark, an economist at Citi.US metals prices also rose on Monday after Trump’s announcement on Friday that the US would impose a 50 per cent tariff on steel and aluminium imports, double the previous level that his administration had put in place in March. The new levies are set to take effect on June 4.Prices for aluminium surged, with the regional premium for aluminium delivered into the US Midwest jumping 54 per cent. Steel futures traded on Comex had a more muted reaction, rising 14 per cent in Monday trading. Shares in US steel producers Nucor and Steel Dynamics climbed 10.1 per cent and 10.3 per cent, respectively. More