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 the first day of April. Today’s agenda includes: Markets worst quarter in almost three yearsOpenAI’s $40bn fundraisingThe White House’s Harvard review And Argentina’s pizza exportWall Street stocks posted their worst quarter in almost three years on fears that Donald Trump’s tariffs will usher in a period of stagflation in the world’s biggest economy.The sharp pullback in the first quarter comes as Wall Street banks and investors fret that Trump’s levies on trading partners will slow economic growth while also increasing prices.When will the selling stop? Sharon Bell, senior equities strategist at Goldman Sachs, said: “I don’t necessarily see the floor quite yet [in stock prices].” The S&P 500 fell 4.6 per cent in the first three months of the year, the worst performance since the third quarter of 2022, according to FactSet data. Big Tech stocks, which dominated stock markets in recent years, fell most heavily during the quarter. Shares in Nvidia, which makes high-end chips that are widely used by AI groups to train their models, fell almost a fifth in the first quarter and electric-car maker Tesla plunged 36 per cent. Apple and Microsoft both lost 10 per cent and the Nasdaq Composite fell 10.4 per cent.What’s the outlook for stocks? Very uncertain. Trump’s looming tariffs are hanging over the global economy and dampening business and consumer sentiment. The US president is expected to announce fresh tariffs later today or tomorrow on top of existing levies on imports of goods such as steel and aluminium. Trump has called tomorrow the US’s “liberation day”. Goldman said at the weekend it now put the chance of a US recession this year at 35 per cent, up from a previous prediction of 20 per cent. Global stock markets are calmer today ahead of the White House’s tariff announcement. Here’s more on the tariff-fuelled uncertainty weighing on markets.And here’s what else we’re keeping tabs on today:Economic data: The US Institute for Supply Management publishes its March manufacturing index and the S&P Global Canada Manufacturing Purchasing Managers’ Index is updated for last month.Central banks: Federal Reserve Bank of Richmond president Thomas Barkin participates in a fireside chat at an event hosted by the Council on Foreign Relations, in New York. The Bank of Mexico releases the results of its prior month poll of private sector analysts, with updated annual forecasts for Mexico’s GDP growth, inflation, exchange rate and benchmark interest rate as the economy slides towards recession.Congress: The Senate Armed Services Committee holds a hearing for Dan Caine, President Donald Trump’s nominee to be the next chairman of the joint chiefs of staff.Five more top stories1. Eurozone inflation fell for the second month in a row in March to 2.2 per cent, as ECB rate-setters consider whether to slow the pace of interest rate reductions. The bank has signalled that it may slow the pace of its rate cuts because of the inflationary risks posed by the looming trade war sparked by US President Donald Trump. Follow this developing story. 2. Donald Trump’s administration has launched a review into measures to tackle alleged antisemitism at Harvard University, which could freeze up to $9bn in federal funding to the institution. The departments of education and health and human services, as well as the General Services Administration are all reviewing their federal contracts and grants to Harvard despite pre-emptive moves by the university to avoid the measures.3. OpenAI has raised $40bn in new funding from SoftBank and other investors, valuing the ChatGPT maker at $300bn as it becomes one of the best-funded private start-ups in the world. SoftBank is providing 75 per cent of the funding and the other 25 per cent is coming from a collection of investors, according to one person familiar with the fundraising. Read more on what OpenAI plans to do with the new capital. 4. Intel’s new chief executive has promised a major “culture change” at the US semiconductor group, saying he will prioritise attracting talent, building relationships with customers and slashing bureaucracy. Lip-Bu Tan also said Donald Trump’s administration is prepared to help Intel as the federal government seeks to maintain US semiconductor leadership. Here’s more on the Las Vegas speech.5. Denmark’s foreign minister Lars Løkke Rasmussen is set to meet US secretary of state Marco Rubio this week in the first in-person, high-level diplomatic talks between the two countries since Trump’s re-election and the US president’s vow to “take control” of Greenland. Here’s what we know about the planned meeting.Today’s big readFrance’s far-right leader Marine Le Pen predicted for months that judges would not dare to immediately ban her from running for office if she was convicted for embezzling EU funds. On Monday, they did just that, dramatically changing France’s political landscape ahead of the 2027 presidential election which she was favourite to win. What are her legal options now and how will it affect the race to succeed Emmanuel Macron?We’re also reading and listening to . . . Chart of the dayGlobal energy demand rose faster than usual last year, according to new data published by the International Energy Agency, as record temperatures across the world meant more power was used for cooling in the self-perpetuating loop between climate change and energy use. Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . In the hierarchy of best-loved pizzas there is the Napolitana and the Romana, maybe even the New York slice and Chicago deep dish. What is not on the list is the Argentine. But pizzerías outnumber grill houses in Buenos Aires and now Argentines want the world to acknowledge their doughy creation.A fusion of local tastes and the country’s Italian ancestry 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.Eurozone inflation fell for the second month in a row to 2.2 per cent, strengthening the case for the ECB to cut interest rates this month.Tuesday’s figure for March was below February’s reading of 2.3 per cent and in line with the expectations of economists polled by Reuters. The annual inflation figure is still higher than the ECB’s medium-term target of 2 per cent. But rate-setters at the central bank believe that an increase in headline inflation since the autumn was temporary.Annual services inflation — a closely watched metric that has concerned the ECB — fell from 3.7 per cent in February to 3.4 per cent, the lowest level in almost three years.The ECB has previously signalled that it may slow the pace of its rate cuts because of the inflationary risks posed by the looming trade war sparked by US President Donald Trump, as well as increased spending on defence and infrastructure. The central bank last month cut rates for the sixth time since last summer to 2.5 per cent. But it stressed that “monetary policy is becoming meaningfully less restrictive”, wording that suggested a more hawkish stance.However, Riccardo Marcelli Fabiani, an analyst at Oxford Economics, wrote in a note to clients on Tuesday that March’s “favourable” inflation data “will lead the ECB to cut rates at this month’s meeting”.Some content could not load. Check your internet connection or browser settings.After the data release, financial markets continued to price in a probability of roughly 75 per cent of another quarter-point cut at the April 17 meeting, according to levels implied by swaps markets.Pooja Kumra, a rates strategist at TD Securities, said the services inflation number “argues for the April cut to still be in play”.But she added that a trade war could change the picture, with “Trump-led inflation ticking up not only for US but also for Europe”.The euro was flat after the publication of the data at $1.082 against the dollar.Core inflation, which excludes highly volatile prices for food and energy, fell from 2.6 in February to 2.4 per cent, the lowest level since the start of 2022. According to separate data released on Tuesday, the Eurozone unemployment rate fell to a record low of 6.1 per cent in February, down from 6.2 per cent a month earlier.Melanie Debono, an economist at Pantheon Macroeconomics, said the figure indicated a “resilient labour market in the Eurozone”. 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. Stocks, especially tech stocks, had an ugly morning yesterday but rallied in the afternoon. Biotech stocks, particularly Moderna, Charles River Labs and other vaccine makers, were hit hardest, after a top Food and Drug Administration vaccine official resigned over the weekend. Email us: [email protected] and [email protected].  Liberation dayTomorrow is President Trump’s “liberation day”: the moment, we are told, he will announce the substance of his trade policy, especially on reciprocal tariffs. Reams of Wall Street research on the topic has washed up in Unhedged’s inbox, and despite a lot of talk of uncertainty, a fairly clear set of consensus expectations emerges from it. There are four points of broad but hardly universal agreement (note that much of the research was written before Trump’s weekend comment that “essentially all” US trade partners would be hit with tariffs):  The tariff programme that Trump announces will leave average levies on US trading partners at between 10-20 per cent, with most commentators placing the number in the lower half of that range. There are lots of charts floating around comparing these figures to historical levels. This one comes from David Seif at Nomura:Immediate or near-immediate tariffs will be announced on the group of countries with the largest trade imbalances with the US (China, the EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Switzerland and Malaysia). These will be imposed using some or other form of executive privilege. Implementation of sectoral tariffs, besides the automotive tariffs, will be pushed off to a later date, pending further study by the administration. But sectoral tariffs on semiconductors, pharmaceuticals, lumber and copper are all expected eventually.Many on Wall Street expect signalling of a potential softening of the tariffs on Mexico and Canada, perhaps coming in the form of confirmation that goods that are “compliant” under the USMCA trade agreement between the three countries will remain tariff free. On the other hand, Wall Street doesn’t know what to think about two essential points. It remains unclear which tariffs will “stack” on top of one another, and where only the highest tariff will apply. And the severity of treatment of non-tariff barriers (quotas, license restrictions, other taxes etc), real or imagined, is all but unknown. As far as the market implications of tariffs, the consensus is very clear that it is negative for equities (it will diminish earnings) and positive for the dollar (the “relief valve” for big changes in relative prices). Many also view it as positive for bond prices. Here is Michael Zezas, head of US policy research at Morgan Stanley, summing things up yesterday:The outcome that would be most beneficial for fixed income relative to equities is the one where investors receive high clarity on substantial tariff hikes. This could look like tariff increases that go beyond tariff differentials, to account for foreign consumption taxes and non-tariff barriers, as well as a clear indication that the bar is high for negotiation with trading partners to mitigate the new actions. Here, per our economists, there’s clear downside to our already below-consensus US growth expectations.Is all this priced in already? Most analysts say “no”. The crucial issue is that no one seems to quite believe what Trump says, but at some point he will actually do something and keep doing it, at which point the market will be forced to price it in.Trump likes uncertainty, because it gives him negotiating leverage by keeping his opponents off-balance and keeping the attention on himself. This is not going to change soon. If we do get a reduction of policy uncertainty on Wednesday, Unhedged expects it to prove temporary. Wealthy consumersThe rich are the engine of US consumption. Households in the top 10 per cent of the income distribution accounted for half of consumer spending last year, according to Moody’s Analytics — a big increase from a few years ago, says Mark Zandi, its chief US economist:Their share of spending was steadily rising over the years, but it took off significantly after the pandemic, because of the surge in stock values and house values. [Expensive] homes and stocks are disproportionately owned by the well-to-do. That has led to a powerful wealth effect: if people see [the value of] what they own rising relative to what they owe — in other words, wealth — they tend to be more aggressive spenders.If asset inflation drove the post-pandemic consumption boom, couldn’t weaker markets cause a slump? If the rich pull back, might a downturn become a recession?We have received some soft indicators that the wealthy might ease off on their spending. The University of Michigan consumer sentiment survey showed it sinking among the top third of earners faster than other cohorts:Wealthier households are also more exposed to the stock market — and, as such, the recent correction. According to Q4 data from the Federal Reserve, the top 10 per cent of households by wealth in the US account for 87 per cent of all the equities owned. The top 0.1 per cent alone own 23 per cent. Since the week of Donald Trump’s election in November, the top 10 per cent of the wealthiest US households have seen $2.7tn of their wealth wiped out in the market, as compared with $656bn for the bottom 90 per cent. Yesterday, we noted that the most recent PCE data showed an uptick in the personal savings rate and softer than expected consumption. Wealthier households could explain much of that.But the impact should not be overstated. While the correction crunched the brokerage accounts of the well-to-do, it only destroyed a comparatively small portion of their overall assets: 2.4 per cent for the top 10 per cent, and 3 per cent for the top 0.1 per cent. And that is after several years of runaway stock market returns and house price appreciation. According to Samuel Tombs, chief US economist at Pantheon Macroeconomics, even after the correction the highest 20 per cent of earners still have plenty of liquid assets, as compared to previous slowdowns and the lower earning cohorts (chart from Tombs):We have not seen downturns in the restaurant and hotel sectors, two areas of consumption carried by the rich. And, historically, big stock market falls have not always caused the highest income consumers to pull back, according to Tombs:The top 20 per cent of households by income kept increasing their spending in 2001 and 2002, despite [a] sharp fall in the total return index for the S&P 500 of 12 per cent and 22 per cent, respectively, as well as more recently in 2022 (-18 per cent).Wealthier households have lower price elasticity of demand, too, and may be able to look through any inflation from Trump’s tariffs, as they did during the 2022 inflationary surge. They are also less likely to be employed in the sectors that could be most affected by tariffs: manufacturing, homebuilding and consumer electronics.A pullback by wealthy consumers would be very concerning for the economy. That may happen if the market takes another big leg down. But for now, the rich look set to keep spending.(Reiter)CorrectionIn yesterday’s letter, we said core PCE rose 4 per cent month on month. That was an error — it was 0.4 per cent, which is still the highest monthly rise since January 2024. We apologise.One good readOpenAI, less-than-open communication.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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UK consumers are about to be hit by a series of price increases from this month, in what parts of the British media are dubbing “awful April”. Increases to water, energy and telecoms bills will push up inflation, even as chancellor Rachel Reeves’ £25bn boost to employers’ national insurance kicks in, leading employers both to raise prices and to curb wages.Kemi Badenoch, Conservative party leader, will cite the price increases as she attacks the Labour government, warning that the “true cost of Rachel Reeves will really hit home with a vicious cocktail of bill increases and price rises”. Mel Stride, shadow chancellor, has called April 1 “Rachel’s Cruel Day”.While the increases will hit many households hard, they come at a time when surveys point to greater optimism among consumers, thanks in part to strong inflation-adjusted wage growth in 2024. Here are the prices that are set to move — and the likely economic and political fallout. What prices are being increased? Regulated energy bills are set to rise by 6 per cent to £1,849 for a typical household, while average water bills are set to climb by 26 per cent to £603. Council tax rises will also come through, with some local authorities permitted to push through larger increases than the 4.99 per cent usually allowed before triggering a local vote. On top of this, many customers will face increases in other charges, for example, on broadband and mobile phone services. Meanwhile, the government’s increase in employer national insurance and minimum wages kicks in from April 6. Companies are expected to offset this through a mix of hiring freezes, lower pay awards and price increases. “It is just a load of price hikes coming all at once — and on things you by and large can’t avoid,” said Paul Dales, chief UK economist at Capital Economics. What does it mean for inflation? The price rises are bound to push up inflation in the short term and are a main reason why the Bank of England expects CPI inflation to hit 3.7 per cent in the third quarter of 2025. Chris Hare, senior economist at HSBC, said last week that even though discounting by fashion retailers pulled CPI inflation down to 2.8 per cent in February, there was still “a fairly pronounced and persistent inflation ‘hump’ above 3 per cent” on the way that would run into 2026. The BoE has said it does not expect this to have any lingering consequences for underlying inflationary pressures in the economy. But there are two big sources of uncertainty: how far businesses will seek to pass higher labour costs on to consumers, as opposed to squeezing wages; and whether the UK will retaliate if it falls victim to rounds of US tariffs. The Office for Budget Responsibility, the fiscal watchdog, estimates that 60 per cent of the NICs increase will be passed on through lower wages or higher prices in 2025-26, its first year of operation. How well will households weather the shock? The saving grace is that the price increases follow a long period of strong wage growth. Earnings rose nearly 6 per cent over the past year, according to the latest official data, comfortably outpacing inflation.Households appear to have been stashing much of this away, saving 12 per cent of their income in the final three months of 2024 — the highest on record outside the Covid-19 pandemic. They may now be ready to start spending again, with the latest data showing a rebound in retail sales and slower flows into savings accounts. “UK consumers seem to be finding their feet again,” said Robert Wood, chief UK economist at the consultancy Pantheon Macroeconomics. “Perhaps the big hit from higher interest rates is now behind us,” said Sandra Horsfield, economist at Investec. But she warned that surveys were now pointing to a slowdown in wage growth, even as businesses raised prices in response to the rise in payroll taxes. “Real wage growth going forwards won’t be as strong,” she said. “That will naturally place a limit on how much extra consumer spending we will get.” How is it playing politically? The idea that Labour is hitting living standards is a critical part of the Conservative campaign ahead of the local elections on May 1, with Badenoch admitting her party faces an “extremely difficult” battle in the weeks ahead.Labour insists that April 1 will be seen by many families as a good day, thanks to an increase in the national living wage that will be worth an extra £1,400 per year for an eligible full-time worker. The rate for those aged over 21 will rise from £11.44 an hour to £12.21.“This pay rise for over 3mn of the lowest-paid workers was a priority for this government,” said deputy prime minister Angela Rayner. “We’re already giving hard-working people more money in their pockets and a proper wage increase worth over twice the rate of inflation.”But the Tories have totted up average bill increases taking effect in April, even as Labour denies that it is responsible for many of the price hikes. The Conservatives say energy bills are rising by an average of £111 a year, council tax by £109, water bills by £123, car tax by £5, broadband bills by £36, phone bills by £46 and TV licences by £5. Nursery fees are expected to rise by £756 a year on average, which the party blames on Reeves’ national insurance increase on employers. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The share of Argentina’s population living in poverty fell sharply in the second half of 2024, the country’s national statistics agency announced on Monday, in a boost for libertarian President Javier Milei in his battle against high inflation. The poverty rate fell to 38 per cent in the second half of last year — the lowest since 2022 — down from 53 per cent in the first half of the year, when triple-digit annual inflation left a majority of people unable to afford a basket of basic goods. Milei, who took office in December 2023, implemented a “shock therapy” package including a sharp devaluation of the peso, sweeping spending cuts and the removal of price caps, unleashing price pressures that had been building after the previous left-leaning government printed billions of dollars to fund spending.The president’s office said Monday’s poverty statistics “reflect the failure of past policies, which sunk millions of Argentines into [poverty] even as they claimed that they were helping the poor”.“The current administration is demonstrating that the path of economic freedom and fiscal responsibility is the way to reduce poverty in the long term,” it added.Marcelo J. García, America’s director for the geopolitical risk consultancy Horizon Engage, said the figure was “a good number” for the government. But he warned the “real challenge” would be to keep poverty decreasing as Milei begins to loosen Argentina’s strict currency controls, which may lead to volatility in the peso and spikes in price pressures. “The poverty line in Argentina is very sensitive to inflation, and there is a big question mark about how the economic programme will manage to continue to slow down prices given the increasing pressure on the peso,” García said.Argentina’s economy emerged from a recession in the third quarter of 2024, and the IMF has projected it will grow by 5 per cent in 2025. Meanwhile, annual inflation has fallen from its peak last April of 289 per cent to 66 per cent this February.But millions of Argentines are still feeling economic pain. Monday’s figures show 11.3mn were living in poverty in late 2024, including 52 per cent under the age of 14.Milei’s critics say the poor have paid a high price for Argentina’s economic stability, with a big chunk of the president’s fiscal savings last year coming from cuts to pensions and social programmes.But analysts say pensions and private sector incomes have recovered to about late 2023 levels in recent months.Milei faces a number of pressing economic challenges, however, including sealing an IMF deal to replenish Argentina’s scarce foreign exchange reserves, which he needs to keep the peso stable and repay the nation’s debts.Uncertainty about the conditions of the IMF deal, which Milei has said is worth $20bn and will be delivered in April, has unnerved investors this month, with the peso’s parallel exchange rate weakening 8 per cent. More

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