Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.US government debt fell sharply for the second straight day after a $58bn short-term Treasury auction drew weak demand and hedge funds continued to rapidly unwind popular trades.The benchmark 10-year Treasury yield, which underpins trillions of dollars in assets worldwide, jumped 0.11 percentage points to 4.3 per cent on Tuesday. It has risen almost 0.3 percentage points over the past two days — a large jump for an asset that typically moves in small increments. Tuesday’s sell-off is the latest sign of how some investors are ditching even very low-risk assets in a dash for cash, as President Donald Trump’s tariffs on major trading partners spark intense volatility in markets. Hedge funds have been critical players in the decline as they have sought to reduce risk in their portfolios and cut back on widespread trades in the Treasury market. The sense of gloom worsened on Tuesday after a US Treasury department auction for three-year notes attracted the weakest demand since 2023. The auction drew a higher than expected yield, and dealers — banks that are obliged to buy up any supply not absorbed by other investors — sopped up 20.7 per cent of the offering, the highest percentage since December 2023, according to Vail Hartman at BMO Capital Markets. That disappointing deal will cast a shadow over upcoming auctions this week, including the $39bn of 10-year notes on offer on Wednesday and the $22bn of 30-year bonds on Thursday. The weak auction will also add to fears that foreign investors are shifting away from US government debt at a time of rising concern over America’s high debt levels and the Trump administration’s targeting of government institutions such as independent regulators. “The poor three-year auction today will definitely feed the rumours about foreign investors pulling back from the Treasury market,” said Matthew Scott, head of core fixed income and multi-asset trading at AllianceBernstein.“People don’t want Treasuries right now, they’re in ‘get me out’ mode,” said one hedge fund manager who asked not to be named. The person added that the auction had been so “ill-received” that it might have weighed on equity markets. The S&P 500 had been up as much as 4.1 per cent on Tuesday but closed down 1.6 per cent in volatile trading. “Post-auction, the [equity] market tanked,” the person said, though others attributed the afternoon sell-off to broader tariff concerns.Hedge funds also continued scaling back risk in their portfolios on Tuesday. Traders and analysts homed in on several strategies that were being unwound, including the “basis trade” in which funds use huge amounts of borrowing to take advantage of differences in prices for Treasuries and associated futures. Hedge funds this year also placed big bets on the likelihood that the Trump administration would cut banking regulation. One rule in particular — the standard leverage ratio — makes it more expensive for banks to hold debt such as Treasuries. Hedge funds were expecting Treasuries to outperform interest rate swaps — derivatives that allow traders to speculate on moves in the debt market — because without these regulations in place, banks would buy more bonds.But as tariffs roiled markets, bond yields have risen with investors, including banks, selling their Treasuries. As a result, interest rate swaps have outperformed Treasuries, upending the popular trade and forcing investors to exit their positions.“It’s a proper, full-on hedge fund deleveraging,” said one trader at a Wall Street bank. More

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 Asia. In today’s newsletter:Trump to proceed with extra 50% tariff on ChinaZelenskyy says Ukraine captured Chinese men fighting for RussiaCan Nintendo’s Switch 2 revive the gaming industry?Donald Trump is pushing ahead with another 50 per cent tariff on Chinese goods, escalating his trade war with Beijing in a move that will cascade across supply chains between the world’s two biggest economies.What’s happening: Chinese goods entering the US will now face duties of more than 104 per cent — a level that will be seen as a provocation by Beijing. The US president is moving ahead with the new taxes after Beijing rebuffed his call to rescind the 34 per cent tariff it imposed on American goods in retaliation for the “reciprocal” duties he announced last week. The extra tariffs make China, the world’s largest exporter, the most penalised country in Trump’s global trade war.Karoline Leavitt, White House press secretary, said the new tariffs would “be going into effect at 12.01am” eastern time on Wednesday. She added: “The president also wanted me to tell all of you that if China reaches out to make a deal, he’ll be incredibly gracious, but he’s going to do what’s best for the American people. China has to call first.”A spokesperson for China’s commerce ministry warned against Trump’s step yesterday, saying Beijing would “resolutely take countermeasures to safeguard its own rights and interests. If the US insists on going its own way, China will fight to the end.” Can we talk?: Washington and Beijing have had no serious communication on their trade tensions, and US trade representative Jamieson Greer said China had not signalled any willingness to engage in talks. Meanwhile Japan emerged yesterday as the first major economy to secure priority tariff negotiations with Trump, highlighting its status as Washington’s biggest creditor and investor. Trump said he had also spoken with the acting president of South Korea and that a delegation from Seoul was “on a plane” to the US.Market reaction: US stocks closed sharply lower, reversing an early rally after the White House said Trump would proceed with the extra 50 per cent tariffs on Chinese goods. The benchmark S&P 500 index closed down 1.6 per cent, a significant pull back from a gain of as much as 4.1 per cent earlier in the trading day. The Nasdaq Composite lost more than 2 per cent. Follow our live blog for more updates.Interview: Singapore fears Trump’s tariffs will trigger a global trade war that will be “very hostile” for trade-dependent small nations, the city-state’s foreign minister told the FT.EU-China relations: Brussels and Beijing should work to reach a “negotiated resolution” in the face of US tariffs, European Commission president Ursula von der Leyen said after a call with China’s Premier Li Qiang.Gaming the system: Companies, in theory, could exploit the differences between Trump’s tariff rates. Here’s how.FT View: Forced to choose between the US and China, south-east Asian countries may opt for Beijing, our editorial board writes.For more analysis on the tariffs, sign up for our Trade Secrets newsletter if you’re a premium subscriber, or upgrade your subscription. Here’s what else we’re keeping tabs on today:Trade war: The US’s “reciprocal tariffs” are due to take effect. Here’s what to know about the new measures.Monetary policy: India and New Zealand announce their interest rate decisions.UK-India Economic and Financial Dialogue: Government officials from both countries will hold talks in London.Seven & i Holdings: The Japanese owner of 7-Eleven reports FY 2024 results, as it faces a takeover attempt by Canada’s Alimentation Couche-Tard.Five more top stories1. Volodymyr Zelenskyy has said his forces have captured fighters from China who were supporting Russian troops in eastern Ukraine, marking the first time Chinese citizens have been taken captive during the war. The two Chinese fighters had both been recruited by Russian military officials to sign up as contract soldiers, according to Ukrainian officials familiar with the matter.2. The US Department of Justice is scaling back cryptocurrency enforcement, the Trump administration’s latest move that is set to benefit an industry the president has championed. US law enforcement will no longer target crypto exchanges, mixing and tumbling services as well as wallets “for the acts of their end users or unwitting violations of regulations”. Here are more details.3. Investors lost $25.7bn in leveraged exchange traded funds late last week, in the biggest ever meltdown for risky funds that have drawn huge inflows in recent years from retail traders seeking quick returns. The high-octane funds, which magnify the daily returns of individual stocks or indices by up to five times, lost almost a quarter of their value as they were hit by the market fallout from Trump’s trade war, according to calculations by FactSet.4. The cost of insuring against debt defaults in Europe’s car industry has soared, as investors ditch bonds in the sector in response to Trump’s tariffs. The auto sector’s slump in response to punitive tariffs, which includes a 25 per cent levy on vehicle imports, means that it now stands out as Europe’s biggest debt market casualty.5. Mexico’s government is talking to the private sector about expanding fracking as Trump’s trade threats heighten fears over the country’s dependence on US gas. President Claudia Sheinbaum, a former climate scientist, directed officials to explore fracking to help deliver energy independence, executives with knowledge of the conversations have said.The Big Read© FT montage/Getty/DreamstimeHopes are high that Nintendo’s Switch 2 console unveiled last week can revitalise the gaming industry, which has struggled with stagnant revenues. But the Japanese company has already been thrust into the centre of an escalating trade war — and risks becoming ones of its earliest victims.We’re also reading . . . No way out: Even if Trump backs down, he will have succeeded in building uncertainty, which is itself a sort of tariff, writes Harvard University’s Jason Furman.New digs: Former Google chief Eric Schmidt bought a London mansion for almost £42mn, the latest high-profile property deal by an American buyer in the city. Fox News: As rightwing critics slam Trump’s tariffs, the conservative news network has other priorities.Chart of the dayThe implicit assumption of Trump’s “reciprocal” tariffs is that in a fair world, trade would balance with every single partner. “This is utter lunacy”, writes FT columnist Martin Wolf. Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . With the boom in all things Korean — K-pop, kimchi, Korean skincare, Squid Game — soju is popping up in cocktail bars and supermarkets the world over. Could this be the drink’s breakthrough year? At Brooklyn bar Orion samgyetang soju is infused with herbs and roots More

US stocks closed sharply lower, reversing an early rally after the White House said Donald Trump would push forward with his threat to hit China with duties exceeding 100 per cent.The benchmark S&P 500 index closed down 1.6 per cent, a significant pull back from a gain of as much as 4.1 per cent earlier in the trading day. The Nasdaq Composite lost more than 2 per cent. Tuesday’s swings were the latest bout of turbulence in US stocks after Trump last week announced a plan to impose steep tariffs on dozens of countries, threatening to ignite an all-out trade war.The White House said on Tuesday that additional 50 per cent tariffs on Chinese goods would go into effect on Wednesday just after midnight in Washington. That would come on top of “reciprocal” measures announced last week, and other levies, bringing the total duties above 104 per cent. Earlier on Tuesday, the White House had signalled an increased willingness to negotiate with US trading partners over reducing their levies, but there were mixed signals as the day went on.Washington agreed to open talks with Japan, with US Treasury secretary Scott Bessent saying on Monday that Tokyo “would get top priority as they came forward very quickly”.Trump posted on his Truth Social platform that he had also spoken to the acting president of South Korea, adding that “we have the confines and probability of a great DEAL for both countries”.By contrast, tensions between the US and China ratcheted up on Tuesday as Beijing vowed to “fight to the end” if the US pressed ahead with steep tariffs on the country.A day earlier, Trump threatened to hit China with a 50 per cent additional tariff, after Beijing last week said it would match his “reciprocal” duty of 34 per cent.The region-wide Stoxx Europe 600, the FTSE 100 and Germany’s Dax were all up about 2.3 per cent on Tuesday.In currency markets, the US dollar was down 0.3 per cent against a basket of trading partners. Oil prices fell, with the international benchmark Brent trading down 3.8 per cent to below $62 a barrel in the New York afternoon, while WTI, the US marker, dropped 3.7 per cent to $58.46 a barrel. US oil prices are now below the level many American producers need to break even on their wells. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldComputer-driven hedge fund Renaissance Technologies was wrongfooted after Donald Trump’s “liberation day” tariff announcement last week sent shockwaves across global financial markets. The Renaissance Institutional Equities Fund, one of the group’s flagship strategies offered to external investors, was down about 8 per cent for April as of Friday last week, according to three people familiar with the figures. The losses reduce the fund’s 2025 gains to 4.4 per cent. Renaissance’s losses underscore the tumult in financial markets since Trump last Wednesday said the US would impose universal 10 per cent levies and far higher duties for many of America’s leading trading partners. One of Renaissance’s smaller strategies fared better in the recent market turbulence. The Renaissance Institutional Diversified Alpha Fund, which as of last September managed just $3.6bn, was down 2.4 per cent in April and has returned 11.5 per cent for the year, the people said. The institutional equities fund, which managed $19.6bn as of September last year, gained 22.7 per cent last year, while the Diversified Alpha fund rose 15.6, according to a person who had seen the numbers. Founded by quant pioneer Jim Simons, who was known as the “quant king” and died last May, Renaissance is one of the world’s best-known quantitative hedge funds. Quant funds shun human decision making and instead rely on computer algorithms to make trades, often identifying patterns in market data and trying to surf trends. Hedge funds and other investors faced some of the most challenging trading days last week since the 2020 coronavirus pandemic shook global markets. Stocks around the world fell sharply on Thursday and Friday, with the US S&P 500 dropping more than 10 per cent. This week, even ultra-safe assets such as US government debt sold off, as hedge funds moved their money into cash and pared back their exposure to the market.Hedge funds have also been hit with the steepest margin calls since the pandemic, as Wall Street banks last week asked their clients to provide more money as backing for their loans, the Financial Times reported. That leverage allows hedge funds to amplify profits when they make lucrative trades, but it can also magnify losses.After decades of high returns, Renaissance’s external funds recorded big losses from the volatile swings during the pandemic, which led to its external assets under management falling steeply. The firm’s Medallion fund, often called the greatest moneymaking machine in history, has been fully closed to external investors for about two decades. More

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

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump’s global tariffs on US imports will depress economic activity, a top Bank of England official has warned, while adding that the impact on inflation will be more difficult to untangle for policymakers.Clare Lombardelli, deputy governor, said on Tuesday that the US president’s policies were increasing uncertainty as well as affecting asset prices, in the first comments from a senior BoE figure since Trump’s April 2 tariffs announcement.Investors have hardened their bets on a series of additional UK interest rate cuts this year, with markets pricing a further quarter-point reduction in May from 4.5 per cent now, and more reductions to come later in the year.“We know the tariffs are likely to depress activity overall,” Lombardelli told an event hosted by the Resolution Foundation think-tank. “The direction there is relatively clear. On inflation it depends a lot more on the circumstances of actually how other countries respond, how that feeds through to the UK.”Lombardelli declined to spell out how Trump’s policies would affect decisions on interest rates. She said the implications for the UK would be brought together by the BoE’s Monetary Policy Committee in its May meeting.Earlier, chancellor Rachel Reeves said the BoE had reassured her that markets were “functioning effectively” and Britain’s banking system was resilient, but that the import taxes would have major implications for the global economy. Acknowledging the anxiety felt by many British households and businesses, Reeves told them: “We have your backs.”Trump’s fresh tariff regime, unveiled last Wednesday, “has had — and will continue to have — huge implications for the world economy”, Reeves said in the House of Commons. But BoE governor Andrew Bailey had “confirmed that markets are functioning effectively and that our banking system is resilient”, she added, with UK financial authorities continuing to monitor reaction in the global markets “closely”.Trump’s trade war is hitting the UK at a time when its economy has barely grown in recent quarters. The Office for Budget Responsibility, the fiscal watchdog, last month halved its growth forecast for this year to just 1 per cent even before the full extent of the US policies was clear. Reeves reiterated that her fiscal rules remained “non-negotiable”, despite growing pressure from some Labour MPs to loosen the constraints on borrowing, as she attempted to further reassure markets.“All of the decisions that we make as a government will be underpinned by the stability of our non-negotiable fiscal rules,” she said. Speaking to MPs separately, Sir Keir Starmer confirmed that Britain was not about to retaliate against the US tariffs. “My instinct is that we should not jump in with both feet to retaliate,” the prime minister said.Some Labour MPs have questioned in recent days whether Starmer has a sufficiently bold set of policy solutions to address what ministers claim is the “end” of globalisation.Starmer told the Commons liaison committee: “Our plans don’t so much change as turbocharge.” He said existing policies, including setting out a “modern industrial policy” and plans to strike new trade deals, would be accelerated. Reeves in the Commons said she would meet US Treasury secretary Scott Bessent “shortly”. The meeting is expected to take place in the coming weeks, but no further details on the timing or location have been confirmed.Trump said on Monday that Japan was sending a team to Washington to negotiate on trade, suggesting Tokyo was first in the queue to open talks on tariff rates.Japanese exports have been slapped with a 24 per cent US tariff, a higher rate than the 10 per cent imposed by America on UK exports. But both nations’ automotive industries are facing damaging 25 per cent US tariffs on vehicles.Speaking in parliament, Reeves said the UK Treasury was among a number of Whitehall departments that were in “ongoing” discussions with the US government in response to the imposition of tariffs.“The focus is on reducing tariff and non-tariff barriers to trade, with a particular focus on those sectors that are subject to the higher tariffs . . . on cars, on steel and potentially on life sciences,” which are among Britain’s biggest export markets, Reeves said.She declined to support an idea proposed by Daisy Cooper, Liberal Democrat Treasury spokesperson, for the UK government to back a “buy British campaign”. “In terms of ‘buying British’, I think everyone will make their own decisions. What we don’t want to see is a trade war, with Britain becoming inward-looking,” Reeves said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldFor years, Vietnam and several south-east Asian neighbours seemed to have a winning growth formula. They followed the export-led path already trodden by the likes of China. They were big beneficiaries of the reordering of supply chains prompted by Covid and US tensions with Beijing, becoming part of “China plus one” strategies for US and other businesses seeking a second export manufacturing base. Now those policies have come back to bite them. When Donald Trump unveiled his “liberation day” tariffs, some of the highest were the 46 per cent rate on Vietnam, and 49 per cent on Cambodia.Though a big rise in US tariffs on China was expected, the hit to south-east Asian manufacturing was a surprise. Writing in the Financial Times, Peter Navarro, Trump’s trade adviser, made clear the White House wants to make countries such as Cambodia and Vietnam choose between the US and China, and “stop allowing China to evade US tariffs by trans-shipping exports through your countries”. Some Trump administration insiders insist China is their main target; other countries affected are collateral damage. The damage, though, is substantial — and far from one-sided. Major US companies including Apple, Nike and Intel have manufacturing or suppliers in Vietnam, following a strategy they believed made sound business and political sense. While efforts to improve domestic capabilities in some high-end manufacturing may have merit for supply chain resilience, moreover, the economics of reshoring T-shirt making to the US is questionable.China has opted for retaliation, vowing to “fight to the end” if Washington presses ahead with punitive levies. It probably felt bound to take a stand against the bullying by its biggest single trading partner — and has more scope to hurt the US than smaller Asian counterparts. South-east Asian countries have so far chosen negotiation over confrontation, trying to keep exports flowing as far as they can. That makes sense. Since their comparative advantage still lies overwhelmingly in low labour costs, changing their economic model is hardly realistic.Malaysia’s Prime Minister Anwar Ibrahim is aiming to co-ordinate the response of Asean, and a delegation from the south-east Asian trading bloc travelled to Washington on Tuesday. Anwar’s efforts may be hindered by the group’s economic diversity: Indonesia, for instance, exports more commodities to the US; the Philippines has a current account deficit and exports more services. Some members have already made their own overtures to Washington. Vietnam has offered to remove all tariffs on US imports, earning warm words from the US president. But Navarro and other US officials have accused Vietnam and others of “cheating” via non-tariff barriers such as export subsidies, as well as being platforms for Chinese exports to evade tariffs. That may limit any chance of negotiated deals. So Asean countries must also try to further deepen inter-regional trade, as they have through their Regional Comprehensive Economic Partnership with China, Japan, South Korea, Australia and New Zealand, and the Asia-Pacific CPTPP pact. They should also seek to improve free trade ties with the EU and western markets.Yet in the end, despite their deep US trade links, it is very hard for, say, Cambodia or Vietnam to plump for America over China, the economic giant on their doorstep; much of the recent growth in Vietnamese manufacturing exports comes from Chinese companies relocating operations to Vietnam. If Trump’s White House pushes them too hard to choose, without making concessions, it may drive them deeper into the arms of the very country at which it says its hardline trade policy is mainly targeted. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldElon Musk has lambasted the architect of Donald Trump’s trade war in the most public display to date of a potential rift between the US president and the world’s richest man.In an extraordinary broadside on Tuesday morning, Musk, a long-standing critic of tariffs, called trade tsar Peter Navarro a “moron”, and “dumber than a sack of bricks”, after the economist dismissed the Tesla boss in a TV interview as a “car assembler” and accused him of “protecting his own interests”.The feud comes after days in which Musk, who spent more than a quarter of a billion dollars on Trump’s campaign and who runs the so-called Department of Government Efficiency (Doge), repeatedly hinted at his dissatisfaction with the White House’s trade policy.Show video infoAppearing virtually at a conference organised by Italy’s rightwing deputy prime minister Matteo Salvini over the weekend, Musk said he was hopeful the US and Europe would reach “a zero-tariff situation, effectively creating a free-trade zone”.Musk also shared a video on his social media platform X in which the free-market advocate Milton Friedman extolled the virtues of a globalised economy by pondering the different parts and labour that are necessary to make a single pencil.On Monday, Musk’s brother Kimbal, who is on the boards of Tesla and SpaceX, called Trump’s tariffs a “structural, permanent tax on the American consumer”, in a post on X. “A tax on consumption also means less consumption. Which means less jobs,” Kimbal added.Musk’s political influence was under pressure before Trump unveiled his sweeping tariffs last week, after the billionaire’s preferred candidate in a Wisconsin supreme court race lost heavily in a contest that became a referendum on Doge’s cost-cutting tactics. The White House also confirmed last week that Musk’s government role, which was originally meant to continue into 2026, could end within weeks, once his work with Doge is complete. Trump said the billionaire was at some point “going to get back to his businesses full time”.In the meantime, some of Musk’s enterprises appear to have suffered from his association with the president. Tesla’s stock has plunged more than 35 per cent since the start of the year amid concerns about a growing trade war and anger towards the company from consumers opposed to Musk’s aggressive cost-cutting mission within the government.In an unsigned letter addressed to US trade representative Jamieson Greer last month, Tesla warned that a trade war could make it a target for retaliatory tariffs and increase the cost of making vehicles in America. The electric-car company’s second-biggest market is China, where Tesla also has a large plant. Musk opened a $200mn battery factory in the country just weeks ago.Starlink, SpaceX’s satellite internet service, has also lost contracts with various governments as tensions between the US and its allies intensify.Musk did not immediately respond to requests for comment. Navarro did not immediately respond to a question about Musk’s interventions in US trade policy.The White House directed the Financial Times to a statement by press secretary Karoline Leavitt that read: “Whatever. We are the most transparent administration in history, expressing our disagreements in public.” Additional reporting by Demetri Sevastopulo in Washington More