Aurelia Butler

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. A short notice before we begin: there will be a special edition of FirstFT tomorrow morning to answer readers’ questions about the first 100 days of Donald Trump’s second term in office. Now, on with today’s agenda: Apple moves more iPhone production to IndiaPwC US internal probeAdidas in fresh racism rowAnd we go inside Interpol’s innovation labApple plans to double its iPhone production in India, people close to the company have told the Financial Times, and shift all production for the US market to the country by the end of next year.Why is Apple making this shift? The California-based company currently sells 60mn iPhones annually in the US, four-fifths of which are made in China, according to researcher Counterpoint. By partnering with local companies, such as Foxconn, Apple has built a highly sophisticated manufacturing operation in China over the past two decades but Donald Trump’s tariffs are pushing up production costs and threatening profit margins. Trump’s “liberation day” tariff announcement on April 2 wiped $700bn off Apple’s stock market valuation.Why has Apple chosen to base production in India? Apple is accelerating a move that had already begun as it tries to diversify its supply chain. In recent years, Apple has been strengthening ties with local Indian manufacturers like Tata Electronics. Imports from India currently face tariffs of 26 per cent but US vice-president JD Vance, on a visit to the country this week, said the two countries were making “very good progress” towards a bilateral trade agreement. Apple publishes results next week and investors will be keen to learn more about the impact of Trump’s tariffs on Apple’s supply chain. Read more of this exclusive story.US-China trade war latest: China has granted some tariff exemptions on American imports and is considering lifting other duties, according to the local US business lobby group.To understand more about Trump’s tariffs and their impact on global supply chains sign up to Alan Beattie’s premium Trade Secrets newsletter. Standard subscribers can upgrade their subscription here. And here’s what else we’re keeping tabs on today and over the weekend:US-Russia relations: Steve Witkoff, Donald Trump’s special envoy, has arrived in Moscow for a meeting with Vladimir Putin, according to local media reports. The visit comes a day after Trump urged Putin to stop bombing Ukraine. Luigi Mangione: Prosecutors told a court yesterday that they plan to seek the death penalty for the alleged killer of former health insurance executive Brian Thompson. Mangione will appear in a Manhattan federal court later for an arraignment.India-Pakistan relations: India’s army chief will review security arrangements and visit the site of a deadly attack on tourists in Indian Kashmir earlier this week.Vatican: More than 200,000 people, including around 50 heads of state, are expected to attend the funeral of Pope Francis tomorrow in Rome. Read more about the plans for the service and the pope’s burial.Canadian election: It is the final weekend of campaigning in the general election ahead of Monday’s vote. Polls suggest the Liberal Party, under Mark Carney, will win. How well did you keep up with the news this week? Take our quiz.Five more top stories1. Exclusive: PwC has ordered nearly 300 of its US partners to cut ties with a tiny brokerage firm offering speculative small-cap investments after an internal investigation into the relationships. The ruling has alarmed senior executives at the Big Four accounting firm, who touted their access to lucrative and hard-to-find investments. Stephen Foley has the full report.2. Alphabet shares rose in after-hours trading after it reported a 46 per cent rise in first-quarter profits, calming fears about the ability of the Google owner to weather a trade war and US recession. The rise in earnings was driven by another good performance in its search business and the boom in artificial intelligence-related demand for cloud computing power. Here’s more on Alphabet’s outperformance.More tech earnings news: Intel plans on “streamlining the organisation, eliminating management layers and enabling faster decision-making” it said in a downbeat set of results that sent its shares lower. 3. Mexico’s President Claudia Sheinbaum is pushing lawmakers to swiftly ban advertising by foreign governments after the Trump administration launched television spots threatening to “hunt” down “illegal” immigrants. “If you come to our country and you break our laws, we will hunt you down,” US homeland security secretary Kristi Noem says on the advert.4. Adidas is being sued by a former US employee, who claims she was unlawfully fired after complaining about racist and sexist comments made by senior directors. The latest allegations come during a period in which the German sportswear group has been accused of mishandling and playing down incidents of racism at the company.5. The Trump Organization has indicated it will fire William Burck, the Quinn Emanuel lawyer it hired as its ethics adviser, after President Donald Trump said he should be removed because of his work for Harvard University. The Trump Organization hired Burck in January to help it develop ethics policies. Here’s more on the organisation’s change of direction.Today’s Big ReadInterpol’s Singapore innovation centre in 2015 More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China has granted some tariff exemptions on American imports and is considering lifting other duties, according to the local US business lobby group, in a sign of possible relief for companies hit by Donald Trump’s trade war.China’s ministry of commerce is reviewing sectors affected by Beijing’s 125 per cent tariffs on US goods, Michael Hart, American Chamber of Commerce in China president, said on Friday.Hart said that healthcare imports to China were under review for possible tariff exemptions. Companies in sectors including aviation and industrial chemicals said that some of their products had already been granted a reprieve, while local media reported that some semiconductors had been spared tariffs.Hart added that the US commerce department was also reviewing the impact of the duties on companies. “It’s good to see that both sides are reviewing the tariffs and it looks like they’re starting to produce lists of exclusions for specific categories,” Hart said. China’s commerce ministry did not respond to a request for comment on the tariff exemptions. The foreign ministry said it was not familiar with any exemptions and reiterated that there had been no direct talks with the US on reducing levies.US President Donald Trump has already excluded high-value Chinese goods such as smartphones and electronics from his tariffs of up to 145 per cent, though he later clarified that those exemptions would be temporary.Beijing’s retaliatory levies of 125 per cent have hit American agricultural goods and energy.Hart said China’s commerce ministry had met representatives from the chamber and its member companies to determine the fallout from the tit-for-tat tariffs. “Our member companies have reported that even within the last week, they had a few shipments that were imported that did not have tariffs levied on them,” he said. “So I think for the critical sectors, we may be able to assume that that’s already in place, but I don’t think it’s a specific policy. I think right now it’s more of a one-off.” French aerospace engine maker Safran also said on Friday that China had granted some import tariff exemptions. Chief executive Olivier Andriès said on an earnings call that “China decided to exempt from tax any deliveries of engines, nacelles, landing gear or parts”.Hart also identified pharmaceuticals and medical devices as industries that were potentially vulnerable, given their high levels of imports. If the tariffs remained in place at the current levels, he said, “it would be hard to imagine that we wouldn’t see some companies close and leave”.The efforts by both sides to mitigate the worst effects of a looming trade war come as Trump has insisted — despite Chinese denials — that negotiations are under way and the levies will soon be reduced.China’s commerce ministry on Thursday called on Washington to “cancel all unilateral tariff measures” if it wanted to begin trade talks.Economists have warned that bilateral trade in some sectors is at risk of coming to a halt, with the current level of tariffs making US imports unviable for many Chinese businesses. Chinese President Xi Jinping said on Friday Beijing had to “fully prepare emergency plans” to boost the economy at a meeting of the Communist party’s 24-member politburo on Friday. Xi called on the government to increase support to businesses, accelerate efforts to boost consumption and more quickly resolve a years-long downturn in the property sector.Officials should “co-ordinate domestic economic work and international economic and trade struggles”, he said.Additional reporting by Ian Johnston in Paris More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldBritish retail sales unexpectedly rose 0.4 per cent in March, before Donald Trump announced sweeping tariffs on US trading partners, with sunny weather helping sales in clothing and outdoor shops.Friday’s monthly data from the Office for National Statistics showed that the volume of goods bought exceeded expectations of economists polled by Reuters, who had predicted a 0.4 per cent contraction.Clothing and outdoor retailers reported that good weather boosted sales, though the increases were in part offset by falls in supermarket sales.The figure followed a 0.7 per cent increase in February and a 1.4 per cent rise in January.However, the latest retail sales data does not take in the impact from Trump’s tariff shock in April and the rise in business and household costs taking effect this month. Separate figures published on Friday by research company GfK showed that consumer confidence fell four points to minus 23 this month, the lowest level for well over a year. Earlier in the week, the S&P Global PMI indices showed that US tariffs and rising costs had also hit business morale. “Retail sales were ticking along just fine before President Trump’s tariffs hit consumers’ confidence,” said Rob Wood, economist at the consultancy Pantheon Macroeconomics.Alex Kerr, economist at the consultancy Capital Economics, said the retail sales figure would add 0.1 per cent points to GDP in the first three months of the year.“But while today’s retail sales data confirmed that households spent a bit more freely than expected in Q1, that may not last,” he added. “The drop in consumer confidence in April after the US tariff chaos suggests that households may start to spend more cautiously in the coming months.”The UK economy performed better than expected at the start of the year, with a 0.5 per cent rise in GDP in February pointing to faster growth across the first quarter than the 0.25 per cent forecast by the Bank of England. The Met Office reported that the UK had its third-sunniest March on record, helping sales.Sales in non-food stores, including department stores, clothing and household stores, rose by 1.7 per cent over the month, pushing them to the highest level since March 2022. In the three months to March, a less volatile measure of spending, sales were up 1.6 per cent compared with the previous three months, the fastest pace since mid-2021.However, the data relates to the period before the US president announced steep “reciprocal” tariffs on dozens of America’s trading partners in early April, and a 10 per cent duty on the UK, in a move that convulsed global markets.The costs of many utilities for UK consumers also rose in April, with road and stamp duty taxes also rising.“We had been upbeat about UK consumer prospects before the US lurch to tariffs,” said Wood. “Now the question is how much rising uncertainty will hit consumers.” 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. US stocks continued their multi-day rally yesterday, despite Beijing declaring trade negotiations would not begin until the US removed Donald Trump’s so-called “liberation day” tariffs. Hope is a hard thing to stamp out. Email us: [email protected] and [email protected] since ‘liberation day’Markets are back to where they were on April 3, the morning after President Donald Trump announced his “liberation day” tariffs. We may be back to where we started, but the ride has been brutal, with every market move driven by news coming out of the White House: That looks like a rollercoaster, and it felt like one for investors. And every time markets fell, investors worried there was worse to come. The Vix index, which uses option prices to track the volatility that investors expect in the coming month, shot up every time markets fell. In this chart we have inverted the Vix so the correlation with the S&P 500 is visible:Some content could not load. Check your internet connection or browser settings.With each stomach-churning decline, the market added to bets that the Federal Reserve would be forced to come to the rescue. This chart shows the S&P 500 against futures markets’ expectation for the federal funds rate at the end of 2025: Some content could not load. Check your internet connection or browser settings.The scariest bit might have been the massive sell-off in the 30-year Treasury bond, visible at left below. It read as a signal that the long-term liabilities of the US were suddenly suspect. Long yields (which rise when prices fall) have stayed near their highs: Some content could not load. Check your internet connection or browser settings.The message was echoed by a fall in the dollar to a multiyear low: Some content could not load. Check your internet connection or browser settings.The shares that have taken it the hardest? The very ones that were the strongest a few months ago. The performance of the Magnificent Seven tech stocks relative to the market as a whole has risen and fallen with the index. Investors appear to be selling whatever is liquid and plentiful — the safest way to cut risk: Some content could not load. Check your internet connection or browser settings.The best performing stocks? That’s easy: consumer staples, the avatars of fear. Here we have inverted the performance of the staples sector to shows how it has been the market’s mirror image: Some content could not load. Check your internet connection or browser settings.A market that responds violently to political news, and where prices reflect investors caught in a manic cycle of hope and fear, is not sustainable. We can’t go on like this. One of two things has to happen. Either the White House provides sanity and predicability in policy, in which case markets can stabilise at a relatively high level. Or the White House continues in its current fashion, in which case the markets will find a new, much lower level which prices in years of volatility to come. Bad hard data has arrivedSpending on big-ticket items appears to be slowing. Start with housing. Inventories are high, but prices have not come down enough to clear the market. Both housing starts and housing completions are falling. Construction employment has yet to fall, but it is only a matter of time (chart from SMBC Nikko Securities America):Stocks of the four biggest homebuilders have been on a steady six-month descent:On the existing home side, things are equally bad. Sales in March were 6 per cent below February and down 2.4 per cent from the prior year. Hopes for the usual spring sales bounce have been snuffed out.Rick Palacios, analyst at John Burns Research and Consulting, notes the supply/demand mismatch:There is no urgency in housing currently. From the buyers standpoint, the “FOMO” [fear of missing out] component of real estate, which is real and drives things, has completely evaporated from the market. From a statistical standpoint, more supply is rolling through the system, but we absolutely do not have more demand. Sales are dragging down, and there is some pricing softness, and potentially more to come…If it becomes clear that prices will continue to come down, there is a daisy chain of impact, where sales will slow a lot…It’s not just housing. Preliminary orders of durable goods — expensive items from appliances to cars — were up 9 per cent in March. But the increase is deceiving. Most of that gain came from a surge in aircraft orders, which are lumpy. The report may have also have been helped by companies front-running steel and aluminium tariffs. Without planes and tariff workarounds, “this likely would have been a deeply negative data point”, according to Rosenberg Research.A pullback in big ticket purchases is a reliable signal of a downturn in the business cycle. Indeed, one might say that willingness to splash out on the big stuff is the defining difference between an expansion and a contraction (hence the notion that “housing is the business cycle”.)The Trump administration appears to be walking back from the brink on tariffs. A softening in tariff policy would certainly help avert a downturn. In the meantime, the uncertainty could be the killer.(Reiter)One Good ReadAthletic prowess.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 hereFree Lunch — Your guide to the global economic policy debate. Sign up here 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 writer is an external member of the Bank of England’s Monetary Policy CommitteeFor a small, open economy like the UK, the impact of US tariffs on inflation is somewhat ambiguous and influenced by a number of factors, including exchange rates. Economic theory suggests that unilateral US tariffs should push the US dollar up, with the exchange rate offsetting some of the impact of tariffs on other countries. But so far, the opposite has happened. How central banks might respond to US tariffs when setting domestic monetary policy therefore depends partly on whether recent exchange rate moves reverse or persist.Modelling the impact of US tariffs on the UK or global economy is fraught with uncertainty, particularly when the tariffs and countermeasures evolve rapidly. For the UK, other countries’ responses to US tariffs will also heavily influence the impact on growth and inflation. There are various channels through which US tariffs are likely to propagate through the UK economy. Those placed on UK goods will raise their cost relative to US-produced substitutes. This is likely to sap demand for UK exports. Other tariffed countries would see demand for their goods fall as well, and the negative income shock would further weaken demand for UK goods. The bigger the trade distortions put in place, the bigger the global demand shock. Other things being equal, the result is likely to be weaker UK growth and inflation.But other things may not be equal. As I laid out recently, if foreign producers are unable to sell as profitably to America, they might engage in trade diversion. They may lower their prices to gain access to alternative markets, reducing import costs for the UK and providing a disinflationary impulse.The impact of trade diversion on output is less clear. Cheaper goods should boost UK real incomes and consumption. But they could also make it harder for domestically produced substitutes to compete, dragging on activity.If tariffs result in supply chain disruptions, we might expect price spikes to cascade through production networks, pushing growth down and prices up. Trade fragmentation also reduces knowledge spillovers between countries and drags on competition. All else equal, this should reduce productivity growth and push inflation up.These channels are likely to be directionally consistent whether there is retaliation for US tariffs or not. But economic theory would suggest this isn’t the case for exchange rates.If the US imposes unilateral tariffs on other countries, then US demand for foreign currencies should fall and the dollar should appreciate. This would make the UK relatively more competitive while also raising UK import prices. This in turn would boost growth and inflation. If widespread countermeasures are imposed on the US by other countries, then demand for US imports could fall, sending the dollar lower. The relative appreciation in sterling would drag on competitiveness and UK growth. The UK would also face lower import costs, tempering inflation.That is the theory. But off the back of US President Donald Trump’s “liberation day”, the dollar has weakened. Amid high volatility following the April 2 announcements, the expected US Dollar Index (DXY) and actual DXY diverged significantly. Sterling has strengthened relative to the dollar, remaining above pre-liberation day levels.The US is the UK’s largest single-country trading partner, but the EU is the UK’s largest trading partner overall. Moves in the euro therefore impact UK growth and inflation as well. Following the US tariff announcements, the euro has appreciated relative to sterling, offsetting some of the impact of dollar weakness in the sterling exchange rate index (ERI), the trade-weighted measure of sterling versus a basket of currencies.If the dollar were to weaken further, the drag on UK growth and inflation would probably be larger. If the dollar rallies instead, the disinflationary impulse of tariffs on the UK would be relatively less significant.It is too early to say what has driven foreign exchange developments and whether they are likely to reverse or persist. At a recent Treasury select committee hearing, chair Meg Hillier highlighted the use of “uncertain” in the Bank of England’s Monetary Policy Report had roughly doubled between last August and February. Given recent developments, that reference looks set to rise further.  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina’s peso has defied many analysts’ expectations and avoided a sharp fall following the relaxation of its fixed exchange rate this month, prompting libertarian President Javier Milei to mock economists who had warned of a much bigger drop. The peso has swung dramatically since its April 14 partial float, before which it was set at 1,068 to the dollar by the government, but on Thursday traded at 1,175. That is well above the new 1,400 lower limit that the central bank has set, and Milei has predicted it will soon hit the 1,000 upper limit.On Monday, when the peso was strengthening close to its pre-float value, Milei criticised Martin Rapetti, director of economic think-tank Equilibra who had predicted a sharp devaluation, on X, calling him an “econo-swindler . . . who devotes himself to poisoning the population’s blood”.Rapetti told the Financial Times the post was “an attempt to intimidate” economists who questioned Milei’s policies and “inappropriate for the president of a serious, democratic country”.Economy minister Luis Caputo also expressed frustration with those who had predicted a greater weakening of the peso. “We’d wait for a wave of apologies from colleagues and journalists apologising for telling people we were devaluing [when the currency float was announced],” he said on X. “But I’m sure it won’t come.”In contrast to earlier this month, the central bank is not intervening in the market to prop up the peso, under the terms of Milei’s new $20bn loan deal with the IMF. The IMF has asked the central bank not to sell its precious reserves of hard currency to strengthen the peso unless it falls to 1,400 to the dollar, and has instead encouraged it to buy greenbacks to build up reserves. Milei said last week the central bank would not buy dollars “until the peso reaches 1,000”.While the peso has weakened in recent days, most analysts now agree that conditions are on Milei’s side to keep the currency in the lower half of its band for the next few months, including a seasonal boost of dollars from Argentina’s massive April-June soya harvest.Argentina’s 29 per cent benchmark interest rate remains high enough to encourage investors to engage in so-called carry trades, in which they borrow in dollars and exchange them for pesos to buy local assets and collect the interest. The central bank last week relaxed restrictions on foreign investors in order to encourage such trades.Meanwhile, Milei has sharply reduced the central bank’s use of money printing and reiterated his pledge to deliver a budget surplus in 2025, which has helped investor confidence.“They have put many variables in play that increase the offer of dollars in the market and reduce demand . . . including Milei’s signal that the peso will hit the upper limit,” said Fernando Marull, head of Buenos Aires-based economic consultancy FMyA.He added that the peso would remain volatile in the coming weeks as the market “tests supply and demand” for a currency whose exchange rate had been controlled by the government for more than five years.A crucial factor will be how fast agricultural exporters opt to sell their wares. A stronger peso encourages exporters to hoard crops, as it means they get fewer pesos for their export dollars. But Milei has warned that a temporary cut in export taxes will expire in June and urged them to sell now. Pressure on the peso may intensify in the latter half of the year as export dollars dry up and Argentina’s October midterm elections approach. Investors traditionally convert their peso assets to dollars ahead of polls.The smaller than expected fall in the currency has led some economists to scrap predictions that inflation would jump once currency controls were lifted. Curbing price pressures is central to Milei’s campaign for the midterms.“I don’t see a serious problem with inflation unless the peso drops a lot,” said Equilibra’s Rapetti.But he said it was too early for Milei to declare victory in maintaining a stronger peso, given that the exchange rate has drastically appreciated over the past year and remained far above its historic average in real terms.“I still believe that to put the country on a path that allows both a growing economy and growing central bank reserves . . . Argentina needs a weaker exchange rate,” he said. “The government has very cleverly managed to postpone that.” More