Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldUS stocks on Tuesday wiped out all of the gains accumulated after Donald Trump’s election, after the president’s tariffs on Washington’s biggest trading partners sparked fears of serious damage to the global economy.The S&P 500 — which hit a record high less than two weeks ago — closed down 1.2 per cent on Tuesday, below its November 5 level, in a session marked by violent swings.The tech-heavy Nasdaq Composite closed 0.4 per cent lower, having recovered some of its earlier losses.The moves came after Trump’s 25 per cent tariffs on imports from Mexico and Canada took effect on Tuesday, triggering outrage from the US’s neighbours and stoking fears of a trade war.The White House also imposed an additional 10 per cent levy on goods from China, on top of last month’s 10 per cent tariff, as the president’s protectionist policies fuelled investor concerns over a worldwide economic slowdown.“A global trade war is a lose-lose situation for everyone,” said Alain Bokobza, head of global asset allocation at Société Générale. “Some people will lose relatively more than others, but everyone will lose.”The US stock market has been hard hit in recent days, in contrast with the rally that followed Trump’s triumph at the polls, when investors bet that his promise to cut corporate taxes would boost profits. “This is what happens when a market that was priced for perfection sees what it least wanted to see: tariffs and slowing growth,” said Steven Grey, chief investment officer at Grey Value Management.The president’s tariffs against the US’s three largest trading partners have raised duties to some of the highest levels in decades, with the prospect of further increases as tensions rise still higher.Canadian Prime Minister Justin Trudeau said Trump’s stated reason for the tariffs — the cross-border trafficking of fentanyl — was “completely bogus” and suggested the US president really wanted to trigger “the total collapse of the Canadian economy because that will make it easier to annex us”.He added that Ottawa would retaliate with an immediate 25 per cent tariff on C$30bn (US$21bn) of US imports and tariffs on another C$125bn of US goods 21 days later.Ontario, Canada’s most populous province, said it would immediately rip up its contract with Starlink, the internet satellite provider founded by Elon Musk, and bar US companies from government tenders. It also announced it would no longer sell US-made alcoholic drinks. While Mexico will wait until Sunday to unveil countermeasures, China said it would levy a 10-15 per cent tariff on US agricultural goods, ranging from soyabeans and beef to corn and wheat, from March 10.Even before this week’s tariffs, some US economic indicators signalled possible problems ahead. A survey conducted by the American Association of Individual Investors showed investor confidence plunged close to an all-time low in late February, while the Federal Reserve Bank of Atlanta’s running estimate of US GDP growth, published on Monday, pointed to a 2.8 per cent contraction in the first quarter.Bank stocks — which are sensitive to economic jitters — suffered heavy declines on Tuesday, with the KBW Bank index down 3.6 per cent.Citigroup and Bank of America fell 6.3 per cent on Tuesday. Morgan Stanley lost 5.7 per cent and Goldman Sachs shed 4 per cent. More

Businesses have begun stockpiling materials, reviewing manufacturing footprints and preparing to raise prices as Donald Trump’s trade war has entered “uncharted territory” with sweeping tariffs on Canada, Mexico and China. Sectors including manufacturing, retail and food were among those to highlight shocks to their supply chains after the US president imposed 25 per cent duties on imports from its two North American neighbours and raised new tariffs on China to 20 per cent. Canada and China also quickly announced retaliatory measures that US groups warned could hurt sales and jobs. Carmakers, already struggling with stretched margins and heavy investments in electric vehicles, are expected to be hit hardest by the expanding trade war due to their complex international supply chains.German automotive supplier Continental said it would review its production capacity in Mexico and Canada as its shares slid 12 per cent in Frankfurt on Tuesday on concerns about the tariff impact. Continental employs more than 23,000 people in Mexico, an important production hub for car companies. It announced a $90mn investment to build its 22nd plant in the country just a year ago.French car parts supplier Forvia also warned of an “enormous” impact for the industry. The company has extensive manufacturing operations in Mexico. The group, with customers including Stellantis, Tesla and China’s BYD, has estimated the levies could raise annual costs by €200mn-€450mn. The figures come from details of internal discussions obtained by the Financial Times and confirmed by the company on Tuesday.“Putting 25 per cent on significant flows of purchases for the sum of the industry automatically has a very significant impact,” Olivier Durand, Forvia’s chief financial officer, said in an interview.Bernstein estimated an annual hit of up to $40bn on the American automotive sector if trade flows remain unchanged — which would translate to an average additional cost of $1,200 per US-made vehicle. More than $13bn in automotive cash flows would probably be wiped out for General Motors, Ford and Chrysler owner Stellantis in fiscal year 2026 if the tariffs remained in place, the firm said. Boeing’s shares fell 6.6 per cent on Tuesday. The plane maker’s plants are in the US, but its supply chain stretches throughout North America. Jefferies analyst Sheila Kahyaoglu estimated the company spent $1bn annually on its Mexico supply chain, and its Winnipeg, Canada, factory makes parts for the 787.US retailers also warned of looming higher prices for consumers. Big-box retail chain Target warned of profit pressures related in part to tariffs on Tuesday. Chief executive Brian Cornell acknowledged some items might become more expensive, with prices of fresh fruits and vegetables from Mexico poised to escalate quickly. Only about half of the company’s products are made in the US.  Rick Gomez, Target’s chief commercial officer, said its merchants would have to be careful about pricing rather than passing through higher costs. As an example, he said Target might freeze the price of Christmas ornaments at $3, “so maybe we’ll take pricing up a little bit on stockings to cover where we are in Christmas ornaments”. Corie Barry, chief executive of Best Buy, said on Tuesday that China and Mexico remained the biggest and second-biggest sources for the consumer electronics it sold. “We expect our vendors across our entire assortment will pass along some level of tariff costs to retailers, making price increases for American consumers highly likely,” Barry told analysts. Industry experts warn the biggest uncertainty is how long these measures will be in place, and if exemptions will be introduced to alleviate the impact of them. “This administration believes that tariffs are important in and of themselves,” said Tim Brightbill, partner at law firm Wiley Rein and an expert on international trade law. American stocks of platinum, a raw material in manufacturing products from cars to jewellery, have jumped to their highest level since 2021 as buyers amassed it ahead of the tariffs, growing fivefold since December. There was also a broad sell-off in mining stocks on Tuesday, with uranium companies — many of which extract the metal in Canada — down overnight. Uranium is a critical element in nuclear fuel development. US spirits trade groups said they were concerned Canadian shops would take American spirits off their shelves and estimated that the tariffs imposed on Mexico and Canada could lead to a loss of more than 31,000 jobs. Spirits are among the first category hit by the retaliatory tariffs announced by Canada on Tuesday, alongside consumer goods such as food, clothes and cosmetics, and electronics such as home appliances.Many of the retaliatory tariffs target American agricultural exports. China will impose a 15 per cent tariff on US chicken, wheat, corn and cotton, and 10 per cent on sorghum, soyabeans, pork and beef. Canada set levies on American imported grains, meat and dairy products. Reporting by Ian Johnston in Paris, Patricia Nilsson in Frankfurt, Kana Inagaki, Camilla Hodgson and Madeleine Speed in London, Gregory Meyer and Guy Chazan in New York and Claire Bushey in Chicago More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldOn March 3, Donald Trump made two highly significant decisions. One was to impose tariffs on Canada and Mexico at a rate of 25 per cent, as well as on Chinese imports at a rate of 10 per cent on top of the 10 per cent imposed last month. A 25 per cent tariff on imports from the EU is expected to follow. Together, these four economies produce 61 per cent of US imports of goods. The other and more significant decision was to suspend US military aid to Ukraine, giving the beleaguered country what appears to be a Hobson’s choice between surrender and defeat. Trump’s friend Vladimir Putin must be ecstatic: the US president is tearing the west apart before his happy eyes.These are merely two sets of decisions in the whirlwind that has accompanied the second Trump presidency. But for the outside world, they are of huge significance. They represent the end of liberal, predictable and rules-governed trading relationships with the world’s most powerful country and also the one that created the system itself. They also represent the abandonment by the US of core alliances and commitments in favour of a closer relationship with an erstwhile enemy. Trump clearly thinks Russia more important than Europe.In both cases, he is sorely mistaken. As Maurice Obstfeld, former chief economist of the IMF, has noted, the US’s trade deficits are not due to cheating by trading partners, but to the excess of its spending over income: the biggest determinant of America’s trade deficits is its huge federal fiscal deficit, currently at around 6 per cent of GDP. The Republican-controlled Senate’s plan to make Trump’s 2017 tax cuts permanent guarantees that this deficit will persist for at least as long as markets fund it. Given this, attempts to close trade deficits with tariffs are like trying to flatten a fully-filled balloon.Some content could not load. Check your internet connection or browser settings.To understand this would require some knowledge of macroeconomics, which Trump lacks altogether. But this is not his only folly. Trump also says: “Let’s be honest, the European Union was formed in order to screw the United States. That’s the purpose of it. And they’ve done a good job of it.” Moreover, he has said of Europe: “They don’t take our cars, they don’t take our farm products, they take almost nothing and we take everything from them.”Both complaints are silly. The EU was formed to bring prosperous economic relations and political co-operation to a continent devastated by two horrific wars. The US long understood and actively promoted this sensible response. But that was, alas, a very different US from today’s self-pitying blunderer.Moreover, as the Danish economist, Jesper Rangvid notes in his blog, Trump looks only at bilateral trade in goods, ignoring trade in services and earnings from capital and labour. It so happens that the income the US derives from its exports of services at least to the Eurozone and the returns on capital and the wages of labour it has exported there offset its bilateral deficits in goods. The overall Eurozone bilateral current account balance with the US is close to zero, not that even this matters. But bilateral balances in goods alone are less significant even than overall bilateral balances. Given how he earns his money, Trump has been running a big deficit in goods all his life. It hardly seems to have done him much harm. (See charts.)For Mexico and Canada, the economic costs of these tariffs will be high, since their exports of goods to the US were 27 per cent and 21 per cent of GDP respectively, in 2023. EU exports of goods to the US were only 2.9 per cent of its GDP in 2023. For it, therefore, the impact of the 25 per cent tariff would not be that great. Yet it would still be an act of unjustifiable, indeed economically illiterate, economic warfare. The EU would have to retaliate. Transatlantic relations would be permanently damaged.Some content could not load. Check your internet connection or browser settings.Even the trade war, outrageous though it is, pales by comparison with the ambush of Volodymyr Zelenskyy in the Oval Office by the US president and vice-president last Friday and the subsequent suspension of military aid to Ukraine. The aim may be to force Zelenskyy to sign the minerals deal. But the bigger problem is that Zelenskyy distrusts Putin, for good reason, and now has no grounds to trust Trump either. Also Trump may want a “peace deal”, but why would Putin agree to a genuine one if Ukraine is his for the taking?Both men are underestimating the will of Ukrainians to be a free people. But if that aim is to be achieved, Europe will have to take up the burden of both securing its own defence and underpinning that of Ukraine. Friedrich Merz, the next chancellor of Germany, was right when he said that his “absolute priority will be to strengthen Europe as quickly as possible so that, step by step, we can really achieve independence from the USA.” Those steps must also be taken quickly. One will be to accelerate the transfer of the more than €200bn in seized Russian reserves to Ukraine. Another will be a huge defence build-up now that the US commitment to Nato has collapsed.Some content could not load. Check your internet connection or browser settings.The EU plus UK has a combined population 3.6 times Russia’s and a GDP, at purchasing power, 4.7 times larger. The problem, then, is not a lack of human or economic resources: if (a big if) Europe could co-operate effectively it could balance Russia militarily in the long run. But the difficulty is in the medium run, since Europe is unable to make some crucial military equipment, on which it and Ukraine depend. Would the US refuse to supply such weapons if Europeans bought them? Such a refusal to supply would be a moment of truth.Trump is waging economic and political war on US allies and dependants. But the resulting collapse in trust of the countries that used to share its values will end up very costly for the US, [email protected] Martin Wolf with myFT and on Twitter More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK economy will be dented by slowing global trade and higher costs as a result of rising tariffs even if it escapes being hit directly by new US levies, chancellor Rachel Reeves has said. “I don’t want to see tariffs increased,” Reeves said at an event hosted by Make UK, a lobby group. “Even if tariffs are not applied to the UK, we will be affected by slowing global trade, by a slower GDP growth and by higher inflation than would otherwise be the case.”The chancellor said she saw good reasons to be hopeful about the prospect of a trade deal between the UK and the US, even as she struck a downbeat note about the wider implications of Trump’s decisions to boost tariffs on Canada, Mexico and China. Show video infoHer concerns come as the trade war widened, with President Donald Trump ploughing ahead with higher tariffs on some of America’s biggest trade partners. Trump on Monday announced he would press ahead with tariffs of 25 per cent on all imports from Canada and Mexico. He also signed an executive order to raise the level of additional tariffs on Chinese imports from 10 per cent to 20 per cent.Reeves was speaking on the same day the Treasury was due to receive the latest round of forecasts from the Office for Budget Responsibility — the UK’s official fiscal forecaster — ahead of a Spring Statement later this month. Economists expect the outlook to show weaker growth and potentially higher inflation than in the October budget, endangering the chancellor’s margin of error against her key fiscal rules. The Treasury has been planning to cut public spending in a bid to restore the “headroom” against its self-imposed fiscal restraints. The Bank of England has already warned that the UK will not be immune from mounting trade hostilities. In its February economic outlook, the BoE said the impact on global growth was “likely to be negative” if Trump goes ahead with higher levies, while there remains “significant uncertainty” over the implications for inflation. Speaking on Tuesday, Reeves said she would continue to make a case for free and open trade, saying that higher tariffs do not serve anyone well. She spoke as the S&P 500 index gave up all its gains since Trump won a second term, as investors took fright at mounting risks to global growth. Trump said last week during a visit to Washington by Prime Minister Sir Keir Starmer that the two sides were in talks over a bilateral trade pact. Reeves said on Tuesday that she was not “naive” about the hurdles ahead. “This is not going to be an easy thing to secure for reasons that we all understand,” she said. “There will have to be give and take on both sides. We absolutely recognise that, but I do think there’s a big opportunity here.” Reeves reiterated the importance of the US-UK partnership in the wake of Trump’s decision to suspend military aid to Ukraine. The US and UK were “closely intertwined” when it came to security, she said. “They are our closest partners when it comes to defence and security and that will continue to be the case.”  More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldShow video infoDonald Trump has imposed a swath of tariffs on Canada, Mexico and China, sparking retaliation from Beijing and sending stock markets lower as fears mount over a trade war.In the most sweeping trade measures since returning to the White House in January, the US president hit imports from Canada and Mexico with a 25 per cent tariff that went into effect on Tuesday.The White House also imposed an additional 10 per cent tariff on Chinese imports on top of a 10 per cent levy imposed last month. Trump has accused the three countries of failing to clamp down on the trafficking of the deadly opioid fentanyl while also demanding that Mexico and Canada tighten their borders.The moves drew an immediate response from Beijing, which said it would levy a 10-15 per cent tariff on US agricultural goods, ranging from soyabeans and beef to corn and wheat, from March 10. Show video infoCanada also unveiled tariffs on $107bn of US imports, starting with $21bn of imports immediately. “Canada will not let this unjustified decision go unanswered,” Prime Minister Justin Trudeau said in a statement. Mexican President Claudia Sheinbaum said on Tuesday that the government would wait until Sunday to unveil countermeasures, which would include tariffs and other actions. The tariffs against the US’s three largest trading partners raised duties to some of the highest levels in decades, and come after Trump last month gave Canada and Mexico a 30-day reprieve from the measures.“Investors have started to really fear Trump’s policies,” said Emmanuel Cau, an analyst at Barclays. “If there is a growth problem in the US, that will be hard to ignore . . . People are nervous, with some even starting to fear a recession [in the US].” US stocks fell on Tuesday, extending the previous day’s heavy declines and wiping out all the gains made since Trump’s election victory in November. The S&P 500 dropped 1.6 per cent, while the Nasdaq Composite lost 1.4 per cent.In Europe, the benchmark Stoxx Europe 600 dropped 2 per cent. Germany’s exporter-heavy Dax, which on Monday posted its best performance in more than two years, tumbled 3.3 per cent. Carmakers, which are among the most exposed given several of them export vehicles from Canada and Mexico for sale in the US, were hit, with Volkswagen falling 4.3 per cent and Stellantis dropping 10.6 per cent.Japan’s exporter-heavy Nikkei 225 slid 1.2 per cent, while Australia’s S&P/ASX 200 retreated 0.6 per cent. Hong Kong’s Hang Seng index, which fell nearly 2 per cent during the session, closed down 0.3 per cent, while mainland China’s CSI 300 benchmark dropped 0.1 per cent. In foreign exchange markets, the dollar fell 0.5 per cent against a basket of currencies, including the euro, yen and pound, following a 0.8 per cent drop on Monday.Mexico’s peso weakened 0.7 per cent against the US dollar to 20.85, while the Canadian dollar fell 0.2 per cent to C$1.451 versus the US currency.The European Commission warned of far-reaching repercussions. “These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic,” it said. The levies against Ottawa are set at 25 per cent except for Canadian oil and energy products, which face a 10 per cent tariff. Canada accounts for about 60 per cent of US crude imports.In its response, China also targeted US companies, placing 10 companies on a national security blacklist and slapping export controls on 15 others. It also banned US biotech company Illumina from exporting its gene-sequencing equipment to China. Beijing had added Illumina to its “unreliable entities” list last month in response to Trump’s initial barrage of tariffs. China’s commerce ministry earlier hit back at the US justification of the tariffs over fentanyl flows, saying the claim “disregards facts, international trade rules and the voices of all parties, and is a typical act of unilateralism and bullying”.Lynn Song, greater China economist at ING, said Beijing’s action — together with countermeasures last month — targeted a total of about 25 per cent of US exports to China, amounting to “a relatively muted response compared to the 10 per cent broad-based tariffs implemented by the US”. Additional reporting by Andy Bounds in Brussels More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.French car parts supplier Forvia has said it expects an “enormous” hit for the industry from Donald Trump’s tariffs, in one of the clearest signs yet of the likely impact of new US trade restrictions on the automotive sector. The group, whose clients include Stellantis, Tesla and China’s BYD, has estimated that tariffs could raise annual costs by between €200mn and €450mn before it takes defensive measures. The figures come from details of internal discussions obtained by the Financial Times and confirmed by the company on Tuesday.US President Donald Trump on Monday confirmed that he would substantially raise trade barriers in North America by going ahead with threatened 25 per cent tariffs on goods coming from Canada and Mexico. Tariffs represent a particularly severe problem for the automotive sector, which has one of the most complex and international supply chains.Olivier Durand, Forvia’s chief financial officer, said in an interview that the tariffs were “enormous for the automotive industry”.“Putting 25 per cent on significant flows of purchases for the sum of the industry automatically has a very significant impact,” he said.Forvia, which makes products from car seats to battery packs, has a market capitalisation of €1.7bn. It has a large manufacturing presence in Mexico, which the company has said is the part of the business most exposed to the new tariffs.The €450mn upper estimate for the costs would equate to more than two-thirds of Forvia’s 2024 cash flow of €655mn.Durand said the estimated figures were a “mechanical total” of the extra costs that tariffs would represent. He added that the company expected the impact to be closer to the €200mn lower figure and that it anticipated measures to pass on costs would mitigate the effect.The €450mn estimate factors in the potential effect of tariffs on “mandated” parts — components and other items that manufacturers specify Forvia must use when making certain products for them.However, Forvia expects that manufacturers will pay tariffs on such products, rather than Forvia.“The mandated part doesn’t concern us,” Durand said, adding that the “raw figure” for exposure before the company took any action to mitigate it would be closer to €200mn than €450mn.The handling of any extra costs from tariffs on mandated products would be subject to negotiations between carmakers and suppliers, Durand added.“It will be up to the carmakers to see with their providers how they deal with the subject,” he said.On Tuesday, Durand said the company was preparing to take measures to tackle tariffs, including increasing the capacity and number of shifts for workers at its US manufacturing plants. It would also negotiate with clients and providers to raise prices.In the interview, Durand said the business could reduce the “final impact” to between zero and €20mn after it took measures to tackle the tariffs.“It’s clear that these are high totals because activity is integrated, but we are prepared to respond,” he said.He added that Trump’s last-minute decision in early February to delay the imposition of tariffs by 30 days had helped Forvia to prepare detailed plans.However, he acknowledged that tariffs could also lead to inflation that would affect sales. He accepted that Forvia would have to negotiate with customers the level of any price increases it wished to levy to offset the effects of tariffs. When it reported results on Friday, Forvia included in its financial guidance for 2025 measures “already enforced” by the US, but did not provide guidance on additional tariffs on Mexico and Canada.On Friday, after Forvia reported annual results, concerns over tariffs and its debt levels prompted a fall in the company’s shares of more than 20 per cent. Shares in rival Valeo also dropped more than 10 per cent. Durand also confirmed that 4,000 people in Europe had left the company in 2024. The company stated in its results that 2,900 people had left under ongoing reduction plans, but the larger figure also included employees whose contracts were not renewed, he added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors are starting to imagine a financial system without the US at its centre, handing Europe an opportunity that it simply must not miss.This exercise in thinking the unthinkable comes despite a cacophony of noise in markets. Mansoor Mohi-uddin, chief economist at Bank of Singapore, recently travelled to clients in Dubai and London. To his surprise, not one of them asked him about short-term issues like tech stocks or tweaks to interest rates. Instead, he says, “people were saying, ‘What’s going on?’ The free trade, free markets, globalisation era is over, and nobody knows what’s going to replace it.”They refer, of course, to the new US administration. Within a month of retaking his seat at the White House, Donald Trump & co had all but trashed the transatlantic alliance, and ridden roughshod over the key checks, balances and institutions on which true US exceptionalism is built.“It’s such a momentous change going on. If it continues like this, capital allocators will wonder: ‘Do I want to stay allocated to the US?’” Mohi-uddin says. This cuts across asset classes. In stocks, the preference for Europe is clear — markets are streaking ahead of the US in a highly unusual pattern. But flighty stock markets are just the surface. The bit that really matters is the international use of the dollar, and dollar bond markets, as the supposedly risk-free bedrock of global finance. This is already starting to show. On Tuesday, for instance, despite the shock of new US trade tariffs on Canada and Mexico, the dollar is not climbing in its usual fashion. Deutsche Bank says this in part reflects “the potential loss of the dollar’s safe-haven status”. “We do not write this lightly,” wrote currencies analyst George Saravelos. “But the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility.” What was once outlandish is now becoming plausible.Economists close to Trump have been clear that they view the dollar’s status as the world’s pre-eminent reserve currency as a blessing and a curse — “burdensome” as adviser Stephen Miran put it. It remains a possibility — again unthinkable just a few weeks ago — that the US could seek to pull the dollar lower in an effort to support domestic manufacturing. But the US could also dismantle its own exorbitant privilege through accident rather than design by pushing the big beasts of bond markets — foreign central banks and other official reserve managers — into the arms of other nations.The dollar makes up more than 57 per cent of global official reserves, according to benchmark data from the IMF, far in excess of the US’s slice of the global economy. The euro accounts for 20 per cent, and everyone else is picking up scraps.Starry-eyed optimists have argued for years that the euro’s slice of the pie should be bigger, but they have been fighting reality. Europe’s bond markets are fragmented into constituent states, with Germany at the centre. The monetary cohesion is there but not the fiscal or strategic cohesion. No national market is simultaneously large, safe and liquid enough to suit a reserve manager’s needs. Super-sized trades leave a mark and in an emergency, these big hitters find only the slick US government bond market will do. The EU has struggled to offer an alternative. That is where this moment in history comes in. Its urgent need for defence spending simply overwhelms the capacity of its individual national bond markets. Joint borrowing — easily said but devilishly tricky to do — is the obvious answer. The result could well be that Europe is thrust further to the centre of the global financial system.The Covid-19 pandemic offered a taste of how pooling resources might work at scale. Then, bonds issued by the EU itself, rather than individual states, were met with enormous demand. The urgency of the present situation offers little choice but to move fast. “Collective action could be an answer, even if consensus has not built yet,” said analysts at rating agency S&P Global in a note last month. If the EU could seize this moment, it would tap in to a deep well of willing buyers keen to trim US exposure. “Plenty of reserve managers could shift very quickly,” says Mohi-uddin. “There would be huge take-up.”US dominance of global debt markets does not have to end with a bang. Large, slow-moving investors would simply have to accumulate other assets rather than necessarily dumping their Treasuries. But over time, the result would be the same. Regime shifts of this kind do not happen often. But they do happen. Sterling was the global reserve currency once [email protected] More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe rupture in the transatlantic security alliance over the past few weeks is leaving Europe with some unpleasant choices. After any ceasefire arrangement between Russia and Ukraine, should the continent return to buying gas from Moscow using a Baltic pipeline with US blessing, as the FT reported over the weekend? Alternatively, should it seek to wean itself off dependence on any Russian fossil fuels? For Europe, the economic questions regarding natural gas are as difficult as the strategic issues. The natural gas price shock of 2022 following Russia’s invasion of Ukraine was the primary force behind Europe’s great inflation. Worse, as importers of gas, European nations automatically become poorer if energy prices rise and no one enjoys the fights involved in distributing the losses. Energy prices are also some of the most salient for consumers and companies, so rises in gas prices threaten the stability of inflation expectations and are likely to foster higher wage demands, keeping inflation higher for longer. Since 2021, the rise in European gas prices made some industries uncompetitive, such as bulk chemical and fertiliser production, amplifying the need for economic restructuring. In this context, three years of German economic stagnation was a creditable outcome, Erik Nielsen of UniCredit convincingly argued at the weekend. There is no doubt that gas matters. So what is happening in this market? First, the good news. As the chart below shows, gas prices in continental Europe are nothing like as high or volatile as they were in 2022. The wholesale price on Monday of around €46 per megawatt hour is more than double the pre-2022 price, but also way down on the crisis costs soon after Russia’s assault on Ukraine. Some content could not load. Check your internet connection or browser settings.The bad news is that European wholesale gas prices have nearly doubled over the past year, raising heating and electricity costs for households and companies alike. Energy prices are again pushing inflation higher. The chart below shows that European prices have come down about 20 per cent compared with the recent peak on February 10. Worse news is that they have risen more than 10 per cent since a recent trough last Wednesday, February 26. Volatility is, therefore, still high. The chart is doubly useful because it compares wholesale prices in the same units and currency (€ per MWh) across the Eurozone, UK and US. It demonstrates that Europe now in effect has a unified market with the UK, with price trends and levels almost identical to those on the continent over the past year. The same is far from true with the US. Although American wholesale prices have also doubled, the cost of wholesale natural gas is less than a third of that in Europe. Given this differential, there is no doubt that, when it comes to negotiating with President Donald Trump, Europe should offer to buy more US liquefied natural gas. Since it is far from clear that Trump knows its price or that these are private markets where governments have limited powers, Europe should also offer to purchase at a comparatively generous premium. The faster Europe can boost its LNG import capacity, the quicker it can diminish its gas price disadvantage with the US, increase imports from the US and reduce its bilateral trade surplus in goods. That is entirely in European interests and might please Trump, even though narrowing the gas price differential between the US and Europe does not necessarily benefit the US. Some content could not load. Check your internet connection or browser settings.Apart from a doubling in price, another problem in wholesale prices in Europe has been some troubling trends in futures prices, raising the expected cost of gas this summer (2025) compared with next winter (2025-26). The problem is that a winter price premium is needed to provide incentives to replenish European gas storage when heating is not needed in the summer. Since late last year there has been a summer price premium, discouraging traders from buying gas this summer to put in storage and sell next winter, as the chart below shows. Normally prices in winter are about 10 per cent higher than in summer. Some content could not load. Check your internet connection or browser settings.That said, as we are getting to the end of a colder than usual European winter, storage levels have fallen, but we should not get alarmed. This year gas storage in Europe is down significantly on last year, but not much below the average level between 2011 to 2025 for this time of year. Until the winter price discount disappears, storage is unlikely to fill quickly. We should also remember that storage is not everything. It represents only about a third of EU annual gas consumption. The price mechanism is likely to resolve these temporary difficulties in boosting storage, albeit potentially at the cost of higher gas prices next winter. Some content could not load. Check your internet connection or browser settings.The immediate question is what this means for inflation and interest rates in Europe. The near doubling of gas prices over the past year has removed the pleasant downward force on annual inflation rates, replacing it with something much less benign, pushing inflation higher across Europe compared with autumn last year. Headline inflation has risen above the 2 per cent target in both the Eurozone and the UK. For the Eurozone the immediate question this week is what gas price assumptions the European Central Bank will include in its new forecasts, published on Thursday. The previous forecast was based on a gas price in the mid-€40s per MWh and gradually declining, which is similar to today’s futures prices. The ECB convention is to take average futures prices for gas over 10 working days with a cut-off roughly three weeks before the meeting. That would put the assumed gas price close to the recent peak, around 15 per cent higher than they are today and 22 per cent higher than assumed in the December forecasts. The ECB’s calibration of this difference from its last forecasts is that the change would add roughly 0.6 percentage points to 2025 forecast inflation and 0.4 percentage points to 2026 forecast inflation. Do not be surprised, therefore, if the ECB’s inflation outlook is bad on Thursday. The fall in the gas price since early February implies reality is not as difficult. The Bank of England recently forecast that higher energy prices would add 0.4 percentage points to UK inflation by the summer, with CPI inflation rising to 3.7 per cent. The chart below shows that on February 26, gas prices had fallen back to the levels in the BoE’s previous forecasts from November 2024 and would have removed the entire 0.4 percentage point uplift. Gas prices have risen since, but not back to the level in the monetary policy report. This demonstrates the importance of gas prices for Europe and how no one can have a good forecast for headline inflation when the wholesale price remains volatile.Some content could not load. Check your internet connection or browser settings.(Re) defining data dependenceECB officials have been having fun defining the concept of data dependence. The common understanding of “data dependence” had been that central bankers were opting to look more at published data, especially inflation figures, rather than their models because these had become unreliable. This was inevitably backward looking, since inflation data is published with at least a month’s lag.ECB President Christine Lagarde introduced the concept of data dependency in March 2023 as a response to an “elevated level of uncertainty”. At the time, she said monetary policy would be set from that time forward on the basis of the ECB’s “assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission”.It was clear that the “dynamics of underlying inflation” meant various measures of core inflation and was backward-looking, otherwise the first two of the three prongs would be tautologous. Of course, this backward-looking data had relevance for the future. That was the point. Policymakers thought it had more relevance than their models.All this was well understood, but recently ECB executive board member Isabel Schnabel and Finnish central bank governor Olli Rehn have attempted to say data dependency always was and will only ever be a forward-looking concept. “I never saw data dependence as a backward-looking concept. It was always forward-looking because we use incoming data to learn more about the credibility of our inflation outlook,” Schnabel told the FT. It is clear that the credibility of central bankers matters. But Schnabel is testing that very credibility by saying that data dependence was always and only a forward-looking concept. Indeed, the “robust control” policy Schnabel favoured in 2022, suggested reacting more strongly with interest rates to high inflation even if that carried risks for the future. You can make an argument that was also forward-looking, but the logic is pretty convoluted.As ECB chief economist Philip Lane told the FT — in my view with more historical accuracy — the challenge for the ECB as inflation comes down is “making a transition from a backward focus to a forward-looking focus”.What I’ve been reading and watchingIf you want the latest information on tariffs (as far as anyone knows), read Alan Beattie’s Trade Secrets newsletter. You’ll find all the important trade consequences there. You won’t find what is going to happen because no one knows Whoop whoop, Turkish inflation has fallen below 40 per cent. Seriously though, orthodox economics, including a policy rate of 45 per cent, has been workingThe failure of G20 finance ministers even to produce an empty communique demonstrates the lack of co-operation in global economic affairs (and the irrelevance of the G20) This time next week, the showdown between former Bank of England governor Mark Carney and my former colleague Chrystia Freeland to become the next Canadian Liberal party leader will be resolved. Trump has made them both more popular than thought possible before he entered the White HouseA chart that mattersEconomic models can give nonsense results. An example came last Friday when the Atlanta Fed’s excellent GDPNow model said its forecast for US annualised growth in the first quarter had plunged from a rate of 2.3 per cent to minus 1.5 per cent and then dropping further to a rate of -2.8 per cent yesterday.The proximate cause was a surge of goods imports ahead of prospective tariffs. Because imports subtract from GDP, the model interpreted the move as negative for output. The truth is that these imports will be offset by a surge in stockpiling, which is unusual and positive for GDP.There is little doubt that Trump is harming the US economy, especially with his imposition of tariffs on Canada and Mexico today. But that does not mean the model is correct. It assumes the surge in imports is negative for growth because that is normally true and would have been true in the data on which it was estimated.We know better. The US economy might be faltering. But do not be fooled that it is slumping. Some content could not load. 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