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 and welcome back to FirstFT. Today we’re covering:Jay Powell’s inflation warningNvidia’s chief executive in BeijingTrump’s stand-off with HarvardAnd the outlook for the dollarPresident Donald Trump’s tariffs are “likely” to put at risk the Federal Reserve’s goals of keeping prices and unemployment in check, chair Jay Powell warned yesterday, as he emphasised the US central bank’s focus on inflation.What else did the Fed chair say? Powell, speaking at the Economic Club of Chicago, said: “The [Trump] administration is implementing significant policy changes and particularly trade is now the focus. The effects of that are likely to move us away from our goals.” He added: “Without price stability, we cannot achieve long periods of strong labour market conditions.” Powell also said that the president’s tariffs had been “significantly larger than anticipated” and that “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”. He said the effects of the tariffs were “likely to move us away from our goals”.What was the reaction to Powell’s speech? US stocks extended a sell-off that began early yesterday. The S&P 500 ended the day down 2.2 per cent at 5,275.70. Gold rose 0.4 per cent today to hit another record high of $3,357.78 and the dollar fell to a fresh six-month low. Stock markets in Asia and Europe were mixed. “Powell is between a rock and a hard place,” Tom Graff, chief investment officer at Facet, told Reuters news agency. “The Fed can’t act proactively to stem any potential economic weakness, given that tariffs are likely to also cause inflation.” Powell’s comments suggest there is a divergence between those members of the Federal Open Market Committee who feel the impact of tariffs on inflation will be short term, such as governor Christopher Waller, and those who think it will be a longer-term problem. Read more on Powell’s comments. For more on monetary policy, sign up for our Central Banks newsletter by Chris Giles if you’re a premium subscriber, or upgrade your subscription.Here’s what else we’re keeping tabs on today:EU interest rates: The European Central Bank is widely expected to lower borrowing costs to 2.25 per cent, the seventh cut since June. Turkey’s central bank is expected to halt its easing cycle. Companies: American Express, Blackstone, Netflix, State Street and UnitedHealth report results. Chinese tea chain Chagee is set to brave choppy markets after raising more than $400mn in its New York initial public offering.Meloni in Washington: Italy’s prime minister will seek to jump-start trade talks between the EU and US when she meets Trump at the White House. Separately, secretary of state Marco Rubio and special envoy Steve Witkoff are due to hold talks with President Emmanuel Macron in Paris.Canada’s election: The leaders of the main political parties gather for a televised English language debate in Montreal.Join Unhedged’s Robert Armstrong and other FT experts next Wednesday for a subscriber-only webinar, as they break down how Trump’s policies are reshaping markets. Register for free.Five more top stories1. Nvidia chief executive Jensen Huang has arrived in Beijing after new curbs from Washington on the chipmaker’s China sales sent its shares tumbling. The trip comes at the invitation of the China Council for the Promotion of International Trade, a government-affiliated trade group heavily involved in facilitating US-China business relations. Here’s more on the visit.More on Nvidia: The chipmaker was blindsided by Trump’s new export controls on its best-selling artificial intelligence chip in China.Congressional investigation: The House of Representatives China committee said DeepSeek posed a “profound threat” to US national security and asked Nvidia to explain how the Chinese company obtained US chips to power its app.2. Trump announced there had been “big progress” after meeting Ryosei Akazawa as Japan sought to become the first major economy to secure a reprieve from US tariffs. Japanese officials said the unanticipated personal meeting with Trump was a possible sign of the president’s keenness to hammer out trade deals with allies. Read more on the outcome of the talks. 3. Trading in two little-known New York-listed stocks soared in the weeks before the companies announced the appointment of Trump family members to their advisory boards. Shares of drone maker Unusual Machines almost tripled and Trump Tower-based fintech group Dominari saw its share price rise 580 per cent before their respective disclosures, which experts have described as “clearly unusual”.4. Santander has overtaken UBS as continental Europe’s most valuable bank after Trump’s tariff-induced market rout hit the Swiss lender harder than its peers. The shift marks a symbolic turnaround for Santander, which has struggled to boost its languishing share price for much of the past decade, and underscores the challenges facing UBS.5. Astronomers have found signs of biological activity on a planet 124 light years from Earth, in what they call the strongest evidence yet of extraterrestrial life. The discovery was made on K2-18b, a distant water-covered planet that is 8.6 times bigger than Earth. Here’s what they detected.Today’s big read© FT Montage/Getty Images/DreamstimeSince entering the White House, Trump has launched an attack on US universities that has few parallels in the history of the federal government’s interactions with the higher education sector. The latest salvo in the war against elite universities came this week, when Trump moved to strip Harvard of its tax-exempt status. For Trump the campaign is central to his culture wars, but the project has the clear imprimatur of Stephen Miller, the president’s deputy chief of staff, who is driving much of the domestic agenda. We’re also reading . . . US tariffs: Trump’s tariffs are not designed as economic policy but as a means to compel loyalty to the president, writes Chris Murphy, junior US senator for Connecticut. The ‘Chinese Dream’: Xi Jinping’s vow of a “great renewal” is no less a political anchor for China than Maga is for Trump’s America, writes Stephen Roach. Brooke Masters: Just when American finance was looking unstoppable, Trump pulled out the rug, writes the FT’s US managing editor.Chart of the day“The US has benefited from reserve currency status for 100 years. It’s taken less than 100 days to unwind it,” says Gregory Peters, co-chief investment officer at PGIM Fixed Income. Can the fall of the dollar eventually erode the currency’s unique role in the global economy and financial system? Some analysts and investors now think the scale of the Trump shock could end a near-century of dollar dominance. Take a break from the newsIt is easier to acknowledge the less good parts of yourself when you’re told they were pre-determined by the stars, writes Jemima Kelly. Follow the FT’s resident contrarian as she tries to make sense of astrology.© Tabby Booth More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nvidia chief executive Jensen Huang visited Beijing on Thursday after new curbs from Washington on the US chipmaker’s China sales sent its shares tumbling.According to two people familiar with his travel schedule, Huang met Nvidia clients, including the founder of generative artificial intelligence start-up DeepSeek, to discuss new chip designs for Chinese customers.He then held separate talks with Chinese vice-premier He Lifeng, according to one person familiar with the meeting.Huang said China was “a very important market for Nvidia” and expressed hope that his company could “continue co-operating” with the country, according to state broadcaster CCTV.On Tuesday, Nvidia said it expected a $5.5bn hit to earnings from new US export restrictions on its H20 chip, a lower-powered model that had already been designed to comply with Joe Biden-era controls limiting exports to China.Huang’s talks indicate that Nvidia is not willing to give up on the Chinese market and is considering designing yet another chip for it even though its previous efforts have been banned by Washington.Plans for the Nvidia chief’s visit to Beijing were finalised after US President Donald Trump’s unexpected move to ban the H20 chip.The group reported $17bn in sales from China last year, but faced growing threats to its business from Beijing even before Trump interceded.In previous trips to China, Huang has shied away from publicised meetings with high-level officials.According to a person familiar with the matter, Huang’s latest visit to China came shortly after the State Council agreed to a meeting request from Nvidia earlier this week.Huang met DeepSeek founder Liang Wenfeng in Beijing, two people familiar with the trip said, to discuss how to design next-generation chips for China that would meet client needs and the regulatory requirements of both the US and China.DeepSeek, an Nvidia customer, in January rattled US tech stocks when it unveiled a competitive AI model that achieved a similar performance to US rivals but appeared to be trained at a fraction of the cost. Nvidia’s effort to maintain its sales in China comes as the country has been forced to prepare to decouple from the US amid Trump’s escalating trade war.The White House has applied additional tariffs of 145 per cent on imports from China, a level that Beijing has matched in retaliation.China has pushed to build up its domestic semiconductor industry and directed domestic tech companies to buy Huawei’s AI chip. The Chinese tech champion is working to address difficulties in using its Ascend AI chip for model training, which has left domestic companies reliant on Nvidia.Huang has called Huawei “China’s ‘single most formidable tech company’”.Nvidia has faced regulatory scrutiny in both Washington and Beijing. China’s antitrust regulator in December announced it was probing the company and reviewing if it had violated commitments made to Beijing when seeking approval for the purchase of an Israeli networking company.The trip comes as US lawmakers are demanding information from Nvidia on whether DeepSeek was able to obtain export-controlled chips.Nvidia declined to comment on Huang’s trip. More

Hi from Taipei, everyone! This is Cheng Ting-Fang, your TechAsia host for this week.It’s been a roller-coaster two weeks for many supply chain executives and managers, with the world’s two largest economies slapping tariffs of 125 per cent or more on each other and the US threatening “reciprocal” tariffs on most of its trading partners and further tightening AI chip export controls.Key suppliers across Asia providing everything from components to final assembly for Apple, Samsung, HP, Dell, Amazon and Meta have been on call nearly 24/7 to deal with the fallout — and with some close contacts at these suppliers, I feel like I am sitting in the back seat watching this real-life drama unfold.“I might need to see a psychiatrist for my mental health,” a manager at a component supplier told me. “Before I went to sleep, customers said they needed to hold all US shipments the next day, but when I opened my eyes, an urgent notice had come saying they now wanted manufacturing to come back at full speed and to move all orders in the third quarter to now to take advantage of the 90-day reciprocal tariff pause.”This is just one example of the kinds of messages I have been receiving lately. The relentless pace of these policy changes is punishing, and the uncertainty and pressure even more so.Fang Leuh, chair of TSMC’s affiliate chipmaker Vanguard International Semiconductor, was very open about the challenges. He said that before Trump’s tariffs, his company was eyeing “mild growth” for 2025, but now they need to “revisit” that outlook. When asked about potential growth drivers for this year, the chair said there was “nothing to write home about”.Yesterday evening, I had a phone call with another long-time industry friend whose company serves major PC makers. He told me that some new problems had emerged: even some products made in China for non-US markets still need materials from American suppliers, like 3M and DuPont. Such components became 125 per cent more expensive overnight due to China’s retaliatory tariffs. To make matters more disturbing, some tech brands have hinted that they could ask suppliers to cut prices in the second half of 2025, as shifting supply chains eat into their profits.For more than two decades, consumers worldwide have been able to take for granted that top-tier tech products like iPhones and MacBooks will arrive on time and at reasonable prices thanks to a massive, efficient electronics supply chain working around the clock. This golden era may already be coming to an end.I remember loving a children’s book called Monty when I was little. In the story, an alligator named Monty ferries a rabbit, a frog and a duck across the river to school every day. The trio relies on Monty but constantly criticises his swimming and speed. Then one morning, Monty is gone — the alligator is on vacation. The three friends try every way imaginable to cross the river on their own but fail, finally realising just how vital Monty is.By undermining the ultra-efficient global supply chain, the US now faces its own “Monty moment”. The ripple effects of this decision will be felt by the entire world.TSMC’s new tech takes shapeIn an ever-changing geopolitical landscape, tech companies must continue to innovate to survive. Nikkei Asia’s Cheng Ting-Fang reports that TSMC is finalising the first design for its next-generation chip packaging technology, which involves a radical change in substrate shape to help leading AI chip developers such as Nvidia, Amazon and Google boost computing performance.The chipmaker is targeting small-volume production of the so-called panel-level packaging in 2027, with the first pilot development line in the Taiwanese city of Taoyuan. Sources told Nikkei Asia that the first generation of this packaging method will use a 310-mm-by-310-mm square substrate, the material on which chips are built.If successful, TSMC’s move to a radically different chip packaging approach will significantly impact the product and R&D road maps of many equipment manufacturers. US, Japanese and Taiwanese chip tool makers have already started redesigning their machines to accommodate the new form factor. This square-shaped substrate can integrate more AI superchips than traditional round wafers, enabling even more powerful AI computing.Optical advanceApple supplier TDK is claiming a major breakthrough in technology to speed up data processing and solve a key bottleneck for the expansion of generative artificial intelligence, writes the Financial Times’ Harry Dempsey in Tokyo.Once famous for cassette tapes with its logo visible on advertisements in London’s Piccadilly Circus, the Japanese group believes its world-first spin photo detector — a melding of optical, electronic and magnetic elements — will be a gamechanger for boosting data transmission and reducing the power consumption of data centres.A demonstration conducted with Nihon University showed a response time of 20 picoseconds, or 20 trillionths of a second, which is 10 times faster than traditional semiconductor-based photo detectors.Although the path to commercialisation is set to take up to five years and require co-operation from integrated circuit designers, TDK’s new tech highlights how the transfer of data between processing units has become one of the key issues in developing generative AI.Other industry leaders, including the world’s largest chipmaker TSMC, are also throwing resources at solving the problem through next-generation silicon photonics that make use of optical technologies to overcome the current constraints of electronics.Live in the momentShares of major Chinese and Taiwanese tech suppliers took a beating in the days and weeks after Trump unleashed his “reciprocal” tariffs, offering a gauge of the supply chain disruption this policy is expected to bring.Some executives even say the uncertainty now exceeds even that seen during the Covid-19 pandemic, Nikkei Asia’s Lauly Li and Cheng Ting-Fang write. A manager at one supplier said they are living as if there is no tomorrow due to the extremely low visibility of future demand.With the 90-day pause on most “reciprocal” tariffs and a temporary exemption for smartphones and laptops, brands such as HP, Dell and Meta are urging suppliers to boost production for the US market. Apple, meanwhile, has been asking suppliers to build more products since earlier this year due to tariff uncertainties and is auditing suppliers’ non-China production facilities. The company has also asked suppliers to prepare to assemble over 90 per cent of its new iPhones, set to launch later this year, in India for the US market.However, game consoles were not lucky enough to be covered by the US tariff exemptions, meaning units shipped from China could face charges as high as 145 per cent. This poses a significant challenge for Nintendo’s highly anticipated Switch 2, as the majority of its production currently takes place in China, as Li and Cheng report.Come togetherTwo heads are better than one. This line of thinking has inspired Japanese automakers including Toyota, Nissan and Honda to come together to develop a standardised design for next-generation automotive chips by March 2029, Ryohtaroh Satoh of Nikkei Asia writes.This initiative, being spearheaded by the Automotive Software Platform and Architecture (ASRA) consortium, aims to solidify Japan’s automotive leadership and enhance its competitiveness against Chinese rivals like BYD, which have gained market share in key regions thanks to their line-ups of cheaper, more electrified offerings.Key chip and component suppliers, such as Denso and Renesas Electronics, are also on board. By standardising automotive chips, these companies hope to gain stronger bargaining power and higher production volumes with leading contract chipmakers like TSMC, which may otherwise prioritise more lucrative AI chip orders over those for automotive applications.Suggested readsJapan stem cell researchers claim success in Parkinson’s treatment (Nikkei Asia)Top Trump official tells Europe to choose between US or Chinese communications tech (FT)Pakistan names controversial Binance founder as crypto adviser (Nikkei Asia)Sony makes ‘tough decision’ to raise PlayStation 5 prices in Europe and UK (FT)South Korean robot AI start-up draws funding from ANA, KDDI, VC firms (Nikkei Asia)China can flick EU ‘kill switch’ — Europe mulls cyber attack risk (Nikkei Asia)The Chinese goods Americans most rely on, from microwaves to Barbies (FT)SoftBank-backed start-up aims to ride DeepSeek buzz with cheap AI servers (Nikkei Asia)Nintendo plays it safe with Switch 2 — but Mario Kart gets a radical makeover (FT)If Trump is trying to suppress China, he’s going about it all wrong (FT)#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London. Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at [email protected]. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Show video infoDonald Trump’s tariffs are “likely” to put at risk the Federal Reserve’s goals of keeping prices and unemployment in check, chair Jay Powell warned, as he emphasised the US central bank’s focus on inflation. The Fed chief said on Wednesday: “The [Trump] administration is implementing significant policy changes and particularly trade is now the focus. The effects of that are likely to move us away from our goals.”While US rate setters would aim to “balance” their goals of keeping inflation near 2 per cent and maximising employment, they would need to remember that “without price stability, we cannot achieve long periods of strong labour market conditions”, Powell said in remarks to the Economic Club of Chicago.Powell also said the president’s tariffs announced so far had been “significantly larger than anticipated”, adding that “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”. US stocks extended a sell-off that began earlier on Wednesday as the Fed chair spoke, with the S&P 500 ending the day down 2.2 per cent. European and Asian stocks were mixed on Thursday, with China’s CSI 300 flat and Japan’s Topix up 1.3 per cent. The Stoxx Europe 600 was down 0.1 per cent and the FTSE 100 was 0.6 per cent lower in early trading.Powell said Trump’s tariffs might place US rate setters “in the challenging scenario in which our dual-mandate goals are in tension”.“If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” Powell said. Several Fed officials — including John Williams, head of the New York Fed, and governor Christopher Waller — have said inflation is likely to surge in the coming months on the back of the administration’s proposed tariffs. While Waller thinks the impact of tariffs will prove shortlived, other members of the rate-setting Federal Open Market Committee which Powell chairs believe Trump’s tariffs have increased the odds that inflation will be a longer problem for US consumers.Trump has repeatedly called on the Fed to cut interest rates, posting on his Truth Social platform last month that officials should act as “US Tariffs start to transition (ease!) their way into the economy”.The Fed’s preferred personal consumption expenditures price index rose at an annual pace of 2.5 per cent in February, above the central bank’s target. Recent surveys have shown that consumers and businesses are expecting strong price rises in the near future as the new taxes on imports ripple through the economy. The Trump administration’s policies have placed the Fed in “wait and see” mode, after the FOMC made a series of cuts over the second half of last year. The US central bank has kept its benchmark federal funds target range at 4.25-4.5 per cent this year, with officials saying they are well-placed to respond once the economic data show the effects of the president’s policies on American businesses and households. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldJapan’s chief trade negotiator will leave Washington without an immediate agreement after meeting Donald Trump as part of efforts to negotiate the removal of stiff US tariffs.The US president met Ryosei Akazawa on Wednesday and said on social media there had been “Big Progress!” as Japan sought to become the first major economy to secure a reprieve from Trump’s tariffs, which sparked turmoil in the global economy after they were unveiled this month.Japanese officials said the unanticipated personal meeting with Trump was a possible sign of the president’s keenness to hammer out trade deals with allies, as China also tries to deepen its engagement in global trade.Akazawa told reporters after the talks that the two sides agreed to hold a second meeting this month and seek a quick resolution. He described the tariffs as “extremely regrettable” and urged the White House to pursue a deal that would strengthen both economies.He said he was “very grateful” that the US president met his delegation, which also held talks with US Treasury secretary Scott Bessent and trade representative Jamieson Greer.The US-Japan talks are being closely scrutinised by governments around the world for clues on Trump’s strategy in escalating a global trade war.Japan, America’s biggest outside investor and closest ally in Asia, has a great deal at risk in economic and security terms if relations with Washington sour. The US has already imposed a 25 per cent tariff on Japanese cars, steel and aluminium and has refused a succession of requests for exemptions from Tokyo.The prospect of an additional 24 per cent levy under Trump’s “reciprocal” tariff regime has shaken corporate Japan and led Prime Minister Shigeru Ishiba to declare a “national crisis”. Japan recorded a ¥9tn ($63bn) trade surplus with the US for the fiscal year to the end of March, its finance ministry announced on Thursday, down 1.3 per cent from the previous year.Speaking to reporters in Tokyo on Thursday morning, Ishiba highlighted Japan’s potential advantage from its trade negotiations being a top priority for Trump.“Of course, the negotiations will not be easy going forward,” he warned.Ahead of joining the talks, Trump signalled he would raise the question of whether Japan should bear a greater financial burden for hosting US military forces at bases around the country.The US president has repeatedly described the allies’ security treaty as “unfair”, last week repeating the assertion that “we pay hundreds of billions of dollars to defend them . . . they don’t pay anything”.Japan pays about $1.4bn a year towards the cost of supporting the US military presence. The prospect that the next round of talks would involve Japan pledging higher defence spending boosted shares in Japanese defence contractors, with IHI rising 5 per cent, Kawasaki Heavy Industries gaining 6.3 per cent and Mitsubishi Heavy Industries up 1.6 per cent on Thursday.According to Akazawa, the talks did not cover foreign exchange issues and the weak yen, a preoccupation for the US administration.Talks on that issue would be conducted separately between Bessent and Japan’s finance minister Katsunobu Kato, he said.Akazawa later reiterated Japan’s position that it was not manipulating markets to weaken the yen. More

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 S&P 500 fell 2.2 per cent yesterday, after it was revealed US export controls would restrict Nvidia’s sales. Info tech shares fell hard, as investors priced in the possibility of new artificial intelligence restrictions; the Philadelphia Semiconductor index fell 4.1 per cent, with losses for all 30 of its constituents, led by Advanced Micro Devices (down 7.4 per cent) and ASML (down 7 per cent). Email me: [email protected] yields and the term premiumOf all the ruckus in markets over the past few weeks, the most concerning part was the rapid rise in Treasury yields, and the momentary positive correlation between equity and Treasury prices. Indeed, by most accounts, this was what caused President Donald Trump to initiate the 90-day pause on tariffs.Treasury yields — which rise when prices fall — are flat now, but remain elevated, as there are still spectres haunting the bond market. Last week’s unwind of various leveraged trades was alarming, and has traders on edge. Investors are worried about rumours of foreign purchasers stepping away from Treasuries. And some market watchers are afraid of potential brinkmanship around the debt ceiling later this year, or that the Trump administration may use unorthodox debt tactics in trade negotiations. From Yesha Yadav, a law professor focused on financial regulation at Vanderbilt University:For some deep pessimists, there is a genuine stress that this administration could threaten debt default to distract from their actions, or that they could pause debt repayments to enact leverage . . . Given how staggering the tariff policy changes have been, it’s anyone’s guess as to how the next steps are likely to play out, and what the US’s debt management policies will be.Unhedged remains more optimistic. Though foreign investors could potentially turn away from US assets, recent Treasury auctions suggest there is still a healthy global appetite for US debt. Republican alignment around Trump’s budget plans last week increases the odds that the debt ceiling will be raised without incident. And, though the president’s tariff moves are hard to forecast, he did cave when the bond market panicked; pausing payments would be very rash.Last week, we were hesitant to over-read Treasuries’ moves, given how much panicked selling was taking place. But, now that things have calmed down, it is worth doing a postmortem on the subcomponents of the Treasury yield — with the caveat that, even with the benefits of hindsight, not all moves can be easily explained.The Treasury yield has three crucial components: the real yield, or the yield investors get above inflation; break-even inflation, the market’s forward expectations for consumer price rises; and the term premium, or the extra bit of yield that investors require to hold longer duration, often used as a proxy for uncertainty or political risk. Real yields fell initially after “liberation day”, but started surging in the days after, accounting for most of the rise in the 10-year Treasury yield:This is the subcomponent that is hardest to read into. The jump could have been from levered positions unwinding, or potentially from a drawdown in foreign investment, or both. However, even at their post-tariff peak, real yields were still below their highs from late last year, when investors started pricing in a surge in growth from Trump’s policies.Meanwhile, break-even inflation remains relatively low, and has been trending lower since “liberation day” and the 90-day pause:That’s a bit surprising, since tariffs ought to flow through to higher prices in the US. The market may be underpricing the inflation risk, or perhaps thinks a slowdown is more likely than stagflation. Or, when looked at together with rising real yields, it might be a vote of confidence in the Federal Reserve.Though all of the subcomponents have cooled off, the term premium remains particularly elevated — suggesting high political uncertainty among investors. Three models are typically used to measure the term premium, all developed by economists at the Fed: the Adrian-Crump-Moench model (“ACM model”), the Kim-Wright model, and the Christensen-Robenson model (“CR” model). As our colleague Toby Nangle has noted, all three have issues. But, even so, looking at the broader trend shows how our current moment of uncertainty compares to past panics:By all three measures, the term premium is high, but not disastrously so. The term premium was higher in the years following the dotcom bubble bursting, during the great financial crisis, and in 2013-2014 during the “taper tantrum”, when the Fed announced it would pause quantitative easing and the bond market panicked. It’s worth noting, however, that all three of those events were based on realised fears: two recessions and a stated central bank policy. The market’s current concerns over the growth impacts of tariffs, upcoming debt debates in Congress, and the rumoured pullbacks by foreign Treasury buyers are still speculative. Markets are not always the best at gauging political risk.There is a more direct measure of the term premium, which avoids some of the models’ pitfalls. It involves subtracting the yield on three-year one-month inflation swaps, essentially a risk-free asset linked to short-to-medium term rate expectations, from the 10-year to 10-year forward swap, or the expected yield on a 10-year Treasury note issued 10 years from now, an estimate of future rates that accounts for the current yield curve. The gap between the two is a direct measure of how much extra yield investors require to hold longer-dated coupons. By this measure, the term premium is also high and trending up, but is not as high as previous bouts of turmoil:However, Brij Khurana, portfolio manager at Wellington Management, shared with me that the previous periods of high term premia are somewhat deceiving:When the Fed cuts to zero [which is where rates were from 2008-2014], yield curves are steep. That means that when there is any rise on the back end of the curve, the [term premium] measure hits higher levels . . . This was not the case in the 2007 environment, when we had high policy rates but an inverted curve. What is interesting about now is we have high policy rates, and a very steep curve. To me, that suggests there are higher than normal fears in the bond market around future issuance and foreign selling.Khurana argues it is best to look at the gap measure through a linear regression, which shows that the current term premium is, indeed, particularly high — well above the average, and on par with periods such as the taper tantrum.To some investors, that might be further proof that what we are seeing is a changing global regime. But, once again, Unhedged is reluctant to draw any firm conclusions without more data. What we will say is that, even without Trump’s tariffs and fears of a slowdown, this was already set to be a jittery year in Treasury markets. The proposed fiscal impulse is low by recent standards, while the US’s debt and debt-servicing costs are historically high. Meanwhile, Treasury secretary Scott Bessent is making a one-way bet on Treasury yields — which may not pan out for taxpayers. One Good ReadMisfit toys.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

Chinese officials and businesses are seeking a rapprochement with the EU amid Donald Trump’s trade war, but the bloc remains deeply sceptical of becoming a dumping ground for goods diverted from the US.Beijing is looking to deepen ties with the world’s largest trading bloc with the hope of finding alternative markets for its goods in the face of steep US tariffs. China has dispatched trade delegations to European capitals in recent weeks and factories are exploring rerouting goods to the continent’s markets.EU leaders have also publicly expressed the need for greater co-operation, a strong contrast to previous declarations stating a need to “de-risk” supply chains from Beijing.But a reset in EU-China ties would need to overcome deep differences over China’s huge trade surpluses, the barriers to accessing its own market and Beijing’s tacit support for Russia’s war in Ukraine.“It is time for China and Europe to start over,” said Zhang Yansheng, a senior researcher at the state-run China Academy of Macroeconomic Research think-tank.Trump’s tariff upheaval “gives us the opportunity to rethink our trade relationship — China should export more to Europe and import more as well”, he added.Some content could not load. Check your internet connection or browser settings.Trump has imposed new tariffs of up to 145 per cent on Chinese exports, threatening to curtail the flow of trade between the world’s two biggest economies. Beijing has retaliated with 125 per cent tariffs.The EU, meanwhile, has been hit by 10 per cent tariffs, which could increase to 20 per cent if talks fail to accommodate Washington’s demands.Trump’s chaotic manoeuvring has set off a flurry of outreach between Beijing and Brussels, as both sides seek a counterpoint to the US.Chinese leader Xi Jinping told visiting Spanish Prime Minister Pedro Sánchez last week that China and the EU should “jointly resist unilateral bullying”.Even European Commission president Ursula von der Leyen, who has been a proponent of “de-risking”, told Chinese premier Li Qiang last week that the two sides should work together to provide “stability and predictability” for the global economy.“Both need alternative markets as well as a sense of stability,” said François Chimits, an economist at the Mercator Institute for China Studies. “Tactically, a move towards more bilateral co-operation between these two economic heavyweights expands their potential leverage in any talks with the US as well.”Chinese President Xi Jinping, right, met Spanish Prime Minister Pedro Sánchez in Beijing last week More

Under a sea of warehouse lights, workers at Lesotho’s Precious Garments snip, sew and press fabrics into 10,000 units of clothing each day. Among their most popular items: Trump-branded golf shirts.The polo stripe, sold by former professional golfer and Donald Trump superfan Greg Norman, is the product of a vibrant textiles industry in the mountain kingdom of 2.3mn that also manufactures for brands such as Levi’s, Wrangler and Foot Locker.Recently dismissed by Trump as a country “nobody has ever heard of”, Lesotho is the largest African garments exporter to the US and a rare success story born out of Washington’s 25-year-old African Growth and Opportunity Act (Agoa), introduced under then-president Bill Clinton to offer tariff-free access to the world’s poorest continent.All that is now at stake. “I was proud [of making Trump shirts], but now I’m not because I see I was doing business with somebody who is not interested or trustworthy,” Gerard Tsepe, the regional manager, said as he reflected on the so-called “reciprocal” 50 per cent tariffs the US president has threatened to impose on Lesotho, one of the highest rates on any country.Levi’s being made at Nien Hsing International Lesotho garment factory More