Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Canada’s central bank has cut its benchmark interest rate to the lowest level since 2022, warning that a trade war with the US will probably slow the pace of Canadian economic growth and increase inflationary pressures.The Bank of Canada on Wednesday reduced rates by 0.25 percentage points, as expected, to bring its policy rate to 2.75 per cent. It marked the seventh consecutive cut in the BoC’s monetary policy easing cycle.The move came hours after US President Donald Trump’s tariffs on steel and aluminium imported from Canada took effect earlier on Wednesday. Trump has also imposed, then delayed, 25 per cent tariffs on Canada and Mexico, despite the US having a free-trade pact with the two countries.BoC governor Tiff Macklem told reporters that Canada’s economy ended 2024 in “good shape” but was now facing a “new crisis” due to the trade war with the US.“Depending on the extent and duration of the US tariffs the economic impact could be severe; the uncertainty alone is already causing harm,” he said. He added that a weaker Canadian dollar is adding costs to importing goods and unemployment is likely to rise over the coming months due to weaker consumer demand.Alongside its policy decision, the BoC published survey data that suggested threats of new tariffs and uncertainty about the US-Canada trade relationship were having a “big impact” on consumer and business confidence.Macklem said the survey indicated Canadian businesses, particularly those in manufacturing and sectors dependent on discretionary consumer spending, had lowered their sales outlooks.“Our surveys also suggest business intentions to raise prices have increased as they cope with higher costs related to both uncertainty and tariffs,” Macklem said. The BoC also cautioned that “monetary policy cannot offset the impacts of a trade war” and Macklem warned that the severity of the impact of new US tariffs on the Canadian economy would depend on their extent and duration.On Sunday the minority government’s Liberal party chose former Bank of England and Bank of Canada governor Mark Carney as their new leader and prime minister, replacing Justin Trudeau. Carney has pledged to “build the strongest economy in the G7”.Carney is expected to call an election that will be held probably in late April or early May. Canada must hold a national vote before October. More

Steven Kamin was previously head of international finance at the Federal Reserve and is now senior fellow at the American Enterprise Institute. Mark Sobel was previously head of international finance at the US Treasury and is now US chair, OMFIF.In recent weeks, the buzz has been mounting about a new American plan — a “Mar a Lago Accord” — to upend the global monetary system. We can only hope it remains idle chatter. In brief, based on a detailed discussion paper by CEA Chair nominee Stephen Miran, the accord would have America’s trading partners help weaken the dollar and commit to providing low-cost, long-term financing to the US government, enforced by the threat of higher tariffs or removal of security guarantees.  Intriguingly, there has been no announcement by the Trump administration or even a tweet by Trump, but Miran’s paper — along with various utterances by Treasury Secretary Scott Bessent — have led Wall Street observers to believe such an initiative is indeed in the offing. And that’s too bad, because a Mar-a-Lago Accord would be pointless, ineffectual, destabilising, and only lead to the erosion of the dollar’s pre-eminent role in the global financial system.The Mar-a-Lago Accord is premised on the view that the dollar’s global dominance is bad for America. Unnatural demand has caused gross overvaluation. This has in turn led to reduced export competitiveness, persistent trade deficits, and the erosion of US manufacturing. In response, an Accord would call for the US and its trading partners to intervene in foreign exchange markets to sell dollars for foreign currency in a bid to get the dollar down. However, since foreign sales of US Treasuries and prospects of dollar losses could push up US interest rates and jeopardise the financing of federal budget deficits, foreign governments would have to increase the duration of their remaining holdings of Treasuries, even buying 100-year zero-coupon bonds from the US government — in essence, free financing for a century! And because they could not be expected to do this voluntarily, they would be threatened with higher tariffs or the loss of American military support if they failed to comply.So, what’s wrong with all that? First, contrary to Miran’s view that the dollar’s global role is harmful for America, it is actually a net plus, facilitating our business activities abroad, lowering the cost of capital, and increasing our geopolitical reach. And even if the plan succeeded in lowering the dollar, it would do nothing to help the US economy or its workers.   Much of our trade deficits reflect a buoyant economy and large fiscal deficits, not the strong dollar. Moreover, our trade deficits aren’t really a problem per se. Despite them, US economic growth has outstripped that of our major trading partners, and the unemployment rate is only 4 per cent — very low by historical standards. In fact, there’s no logic to the notion that all countries should have balanced trade. We need trade deficits in order to provide an outlet for spending that otherwise would show up as economic overheating and inflation. Moreover, the strong dollar clearly isn’t the cause of the shrinking share of US workers in manufacturing (now less than 10 per cent of total employment). The same trend has been at work the world over, in countries with both trade surpluses and deficits, on account of the rapid productivity growth in this sector.Second, the plan would not succeed. As countless studies have shown, pushing the dollar down on a sustained basis would require the Federal Reserve to lower interest rates and foreign central banks to raise rates; but with US inflation stubbornly exceeding the Fed’s 2 per cent target and foreign economies languishing, that’s not going to happen. By the same token, if foreign governments were busy selling Treasury bonds in order to depress the dollar, it’s unlikely that increasing the duration of their remaining dollar bonds could be enough to keep US interest rates from rising. And while threats of higher tariffs and ejection from the security umbrella might coerce Japan and Europe to play ball, China — which should be America’s main concern — is going to be less willing to kowtow to Trump.Third, a Mar-a-Lago Accord risks undermining the global dominance of the dollar. That dominance is based not only on the safety and liquidity of US Treasuries, but also on the long-standing historic prudence of US economic policymaking and its support for a stable, rules-based global trading and financial system. Mistreating our allies, breaking trade agreements, and undermining support for global institutions, as is now under way, will only encourage other countries to seek alternatives to the dollar. Trump has threatened countries with tariffs if they abandon the dollar, but nothing could accelerate that process more effectively than reckless actions against our trading partners.Finally, an effort to force a Mar-a-Lago Accord on resistant trading partners could trigger a global financial crisis. The stock market is already in freefall on account of Trump’s capricious tariff policies. Consider what would happen if Trump threatened our allies with ejection from the US security umbrella, a “user fee” on Treasury repayments abroad, or a selective freezing of Treasury repayments altogether, as Miran has suggested in his magnum opus. Ditto forcing others to “reprofile” into 100-year zero coupon bonds. As the safest and most liquid asset in the world, US Treasury bonds are the bedrock of the global financial system — if they suddenly became less safe and less liquid, a financial panic akin to the Lehman Brothers and coronavirus meltdowns could ensue, taking the US and global economies down with it. The dollar might indeed fall, but not in a way that Trump would like.All told, a Mar-a-Lago Accord would represent huge downside risk for approximately zero upside gain. It is doubly amazing that Trump officials seem to be drawn to it when there is another policy that could simultaneously lower the dollar, narrow our trade deficit, reduce interest rates, and put the federal budget on a sustainable path for years to come: cut spending, responsibly raise taxes, and reduce the fiscal deficit. Instead, we get DOGE, tariffs with a half-life of 1 1/2 hours, threats to our closest allies, and the trashing of America’s credibility. It’s going to be a long four years. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldSir Keir Starmer, UK prime minister, has said he is “disappointed” that the US imposed tariffs on British steel and aluminium imports, but stopped short of following the EU in announcing retaliatory measures.Downing Street on Wednesday said Starmer would take a “pragmatic approach”, attempting to strike an economic deal with US President Donald Trump, which he believes could shelter Britain from future levies. Speaking at Prime Minister’s Questions in the House of Commons, Starmer said he was “disappointed” the global levies had been imposed on the UK by the US. He said he would “keep all options on the table” in response to the move and that Britain was “negotiating an economic deal which covers and will include tariffs if we succeed”.But Liberal Democrat leader Sir Ed Davey called on Starmer to be “more robust”, after Canada and the EU launched retaliatory measures.Starmer’s comments echoed remarks earlier on Wednesday by business and trade secretary Jonathan Reynolds after a 25 per cent levy on steel and aluminium came into force overnight. Number 10 said Reynolds would travel to Washington next week to discuss the wider economic bilateral deal, which will initially focus on closer ties in technology.Starmer’s spokesperson said the government’s approach reflected the desire of British industry to avoid “a trade war where both sides escalate the situation”. He reiterated ministers’ support for the UK steel sector, citing £2.5bn of state investment to aid the industry.Britain’s decision was starkly different from the EU, which immediately hit the US with €26bn of retaliatory tariffs on American goods. Trade body UK Steel warned that the tariffs “couldn’t come at a worse time” as the industry battles high energy costs and sluggish demand. Exports to the US from the UK accounted for 7 per cent of total UK exports last year by volume but 9 per cent by value, and were worth more than £400mn.Some steel contracts had been put on hold or cancelled before the tariffs took effect. One industry executive said their main concern was that the UK, by not responding as the EU had done, would be left exposed and could end up being flooded by imports originally destined for the US.Tata Steel, which owns the Port Talbot steelworks in south Wales and exports products used in packaging and the oil and gas sector in the US, said the tariffs were causing a “lot of uncertainty” for customers. With other governments likely to tighten safeguard measures, the UK should follow suit “to avoid cheaper imports flooding our market and pushing down prices as competitors look to redirect steel originally destined for the US”, said the Indian-owned group.The calculation in London is that the US tariffs, which will add £100mn to the cost of UK steel exports, are not big enough to trigger a full-scale response that would inflame relations with Washington.British officials say Starmer and Reynolds hope an “economic deal” with Washington could take Britain out of the line of fire in what could be an escalating transatlantic trade war.That proposed agreement was discussed by Starmer and Trump at the White House last month, but it is far from clear whether it can be negotiated.Last month Trump told Starmer at the White House he thought the UK and US could end up with a “real trade deal” without tariffs and called the prime minister a “tough negotiator”.Starmer urged Trump not to impose new steel tariffs on Britain in a phone call over the weekend and Reynolds made similar pleas to his US counterpart Howard Lutnick, but to no avail.Britain’s softly-softly approach to the Trump trade war, enabled by the UK’s exit from the EU and its common commercial policy, will be viewed warily in Brussels, especially as Starmer is seeking to “reset” relations with the EU in the coming months.In the short term Britain’s response to the US steel and aluminium tariffs will be focused on wider government support for the sector, including a plan to cut the energy bills of heavy industry. “We remain resolute in our support for UK industry,” Reynolds said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank President Christine Lagarde said the ECB was becoming less able to guarantee meeting its 2 per cent inflation target in the short term, as policymakers were forced to wrestle with “exceptionally high” uncertainty.A week after the central bank signalled a possible slowdown in cuts to borrowing costs, after reducing its benchmark interest rate for the sixth time by a quarter point to 2.5 per cent, Lagarde told a conference in Frankfurt that the environment had become so difficult that it would be “impossible” to guarantee that “headline inflation will always be at 2 per cent”. The comments will fuel doubts over the pace and frequency of potential future rate cuts, after Lagarde withdrew her previous guidance that “the direction of travel” — further gradual cuts — was “clear”.Show video infoThat change in tone from the ECB president reduced expectations of another rate cut in April, with several banks now expecting that rates will be cut less by the end of the year than previously forecast. The ECB’s 2 per cent inflation target — introduced in 2021 — covers the medium term and allows for short-term deviations in real time trends.Lagarde stressed that the goal was to ensure that “inflation is always converging back towards 2 per cent over the medium term”. This orientation “enables us to avoid reacting to small or passing shocks that will have faded by the time the effects of a policy change kick in”, she said, adding that the ECB could “adjust the horizon within which we must return inflation to target”.The ECB president warned that higher public borrowing to fund defence and infrastructure investment, as well as a potential trade war involving the US, “might feed into inflation more directly and increase volatility”. The euro area might be particularly vulnerable because it was “highly exposed to some of the new types of shock” due to its large dependence on global trade and energy imports, she said.Escalating tariffs, as well as a debt-funded push to raise defence and infrastructure spending by Germany and other euro countries, could create “new, two-sided shocks” that could either damp or accelerate inflation, according to Lagarde.“The direction of shocks is much harder to predict,” she said.As a consequence, the ECB would pay even closer attention to inflation expectations. Lagarde said the central bank could “look through” short-term supply shocks such as higher energy prices as long as households and companies do not take higher price increases in the future for granted. But inflation expectations may have become more volatile following the recent price surge. “Once consumers took notice of rising inflation, their inflation perceptions responded quickly but reduced more sluggishly when inflation started to fall,” Lagarde said. On interest rates, she said the ECB “cannot provide certainty” about the path forward. It would instead look to clarify how it would respond to particular shocks and events. 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 Americas. Here’s what we’re covering today: EU retaliates to US import tariffs Donald Trump Jr’s Maga investmentsJapan’s rocky ride to economic normalisationThe new trend for infrared saunasWithin hours of the US government introducing 25 per cent tariffs on steel and aluminium imports the EU retaliated with measures that would affect up to €26bn of American goods, including bourbon whiskey, cosmetics and Harley-Davidson motorcycles.Announcing the tariffs, which will take effect from April 1, European Commission President Ursula von der Leyen said they were “bad for business” and would disrupt supply chains, put jobs at stake and push up prices.The introduction of the EU’s tariffs caps an unsettling 24 hours for the US and its trading partners. Earlier yesterday Donald Trump had threatened to double tariffs on Canadian steel and metal imports to 50 per cent before rescinding the move after Canada suspended a 25 per cent surcharge on exports of power to the US. The US administration said the new steel tariffs were a response to “foreign players” that they say are responsible for “surging exports” of metals to America that are undermining domestic producers. The full list of steel and aluminium products subject to the levies represented $151bn of imported goods in 2024, according to an analysis by Simon Evenett and Johannes Fritz of the St Gallen Endowment for Prosperity Through Trade.Ted Murphy, a partner at law firm Sidley Austin, said Trump’s sweeping new metals tariffs represented a “big change” from his approach when he introduced similar levies in 2018. Read more on the new tariffs.Here’s what else we’re watching today:Economic data: The closely watched US consumer prices index is released. Brazil also publishes monthly inflation data.Monetary policy: The Bank of Canada announced its latest interest rate decision. The BoC’s benchmark overnight lending rate is currently 3 per cent.Results: Retailer American Eagle Outfitters publishes fourth-quarter results while software group Adobe updates on its first-quarter performance.Taoiseach meets Trump: Ireland’s leader Micheál Martin meets the president at the White House St Patrick’s Day celebrations.Five more top stories1. The US is to resume deliveries of weapons and ammunition to Ukraine and end its suspension of intelligence-sharing after Kyiv accepted a proposal for an immediate 30-day ceasefire in its war with Russia. The proposed ceasefire, which still needs to be agreed by Russia, capped several hours of talks between US and Ukrainian officials in the Saudi Arabian city of Jeddah. Here’s more on what was agreed.Live event: Join FT experts on March 27 for a subscriber-only webinar, as they discuss Ukraine’s future with Russia’s full-scale invasion entering its fourth year. Register for free.2. The US House of Representatives has narrowly passed legislation to keep the federal government funded until the end of September. The bill now heads to the Senate, where it will require the backing of at least eight Democrats to secure passage. If it fails to pass by Friday, when current funding expires, the government will shut down.3. Executives at the biggest US airlines yesterday warned of a slowdown in domestic demand, prompting some of them to slash their revenue and earnings expectations for the first quarter in the latest sign of waning consumer confidence. The comments by American Airlines, Delta Air Lines, Southwest Airlines and United Airlines triggered a sell-off of airline stocks. 4. Palantir’s Alex Karp has been catapulted to near the top of the wealthiest US tech company bosses after the unorthodox chief executive sold $1.9bn worth of stock in the data intelligence group. Karp has made a fortune thanks to a 350 per cent surge in Palantir’s share price last year, which made it the best-performing stock in the S&P 500.5. More than half of the world’s most populated cities are getting wetter, according to new research on how water patterns are undergoing dramatic shifts in urban areas as climate change intensifies the atmospheric effects. Read more on the academic study, conducted on behalf of aid group WaterAid.Today’s big read© FT montage; Getty ImagesSince his father’s 2024 election victory, Donald Trump Jr has joined forces with a small group of financiers who are devoted to the president’s vision of America. This means companies that promote environmental, social and governance or diversity, equity and inclusion are out — and investments based on “entrepreneurship, innovation and growth” are in. “Since 2021 I’ve been a vocal proponent of the parallel economy,” the president’s oldest son told the FT.We’re also reading . . . Elon Musk: The cost for Donald Trump of keeping the world’s richest man by his side is growing, argues Edward Luce. ‘We have to rebuild our country’: The team behind Donald Trump’s economic shock therapy aiming to radically reshape the world’s largest economy. Taking up America’s mantle: If Europe does not mobilise quickly in its own defence, liberal democracy might founder altogether, writes Martin Wolf.Daylight saving: Changing the clocks does not extend the light available to us, writes Anjana Ahuja, and it is time we abolished the twice-yearly switch.Chart of the daySome content could not load. Check your internet connection or browser settings.Japan is undergoing its biggest economic inflection in over three decades that has seen prices and interest rates rise. While many other countries have fought to keep inflation down, in Japan its return has been encouraged. Policymakers aim to foster a virtuous cycle of rising prices and wages that could spur demand and generate moderate and steady growth. But, despite some positive signs, it has been a bumpy ride.Take a break from the news . . . The likes of Jack Dorsey, Cristiano Ronaldo, Gwyneth Paltrow and Dave Asprey seek self-optimisation with infrared longevity therapies — compact, next-generation saunas where the hot box potency comes from a spectrum of red and infrared light. HTSI explores some of the hottest options.Clearlight Sanctuary Saunas can include add-ons such as salt therapy Recommended newsletters for youOne Must-Read — Remarkable journalism you won’t want to miss. 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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Amazon, Google and Meta have joined a call by big, energy-intensive companies for governments and utilities to build more nuclear power in the latest boost to the industry’s revival.Oil group Occidental and chemical producer Dow are also among the eight large buyers of energy to sign a pledge to support the goal of tripling nuclear capacity by 2050. The statement was co-ordinated by the World Nuclear Association, an advocacy group for the sector.Microsoft and Apple, which also use significant amounts of energy and have committed to reducing their carbon footprint, did not sign the statement. The show of support follows a similar pledge in September by 14 of the world’s biggest financial institutions, including Goldman Sachs, Bank of America, Barclays and Morgan Stanley, to increase their support for the sector and back a call made at the COP28 UN climate conference for nuclear power to be tripled by 2050.Amazon said it had invested more than $1bn in the nuclear industry in the past year and that speeding up new power stations would be “critical” for US security, meeting growing energy demands and helping combat climate change.Since COP28 in November 2023, eight new nuclear reactors have been connected to grids around the world and construction has begun on 12, according to the WNA.Urvi Parekh, head of energy at Meta, said the tech company had backed the pledge because it believed the challenge of building expensive nuclear plants required significant co-ordination between developers, utilities, governments and power consumers.She added that the announcement was aimed at encouraging governments to smooth regulation for nuclear power expansion and to signal to utilities that there would be buyers for their electricity. Meta last year issued a tender for 1 to 4 gigawatts of new nuclear power projects to come online in the 2030s.The nuclear revival has led some countries to change their policies, including Japan, which said last month that it wanted the share of nuclear power in its mix to rise from 8.5 per cent in 2023 to about 20 per cent by 2040.“We are not only regenerating existing plants, we are also building new generation,” said Takehiko Matsuo, Japan’s vice-minister for international affairs at the economy, trade and industry ministry, at CERAWeek, an annual energy conference in Houston, on Tuesday. Japan’s move on nuclear power was mainly driven by increased demand for electricity, he said.Italy’s government last month submitted a draft law to parliament laying the ground for the country to reintroduce nuclear power, which it phased out after a referendum in 1987.Despite high costs, the nuclear industry has been buoyed by rising electricity demand in advanced economies, and by projections from the International Energy Agency that demand will grow by 3 per cent a year for the next decade.But developers of next-generation nuclear technologies, including small modular reactors, still face technical, regulatory and funding risks.Technology groups have signed dozens of nonbinding memorandums of understanding with developers of SMRs, but only a handful have committed funding to projects. Lawrence Coben, chief executive of NRG, a large power producer that last month announced a partnership for gas-fired plants, said: “There’s no proof that there’s any commercial viability to this.” So-called hyperscalers with large cloud computing and data businesses “are not counting” on nuclear, said Coben. “If there were huge penalties and payments, if you didn’t deliver by 2035, that would be more interesting to me. But that’s not what those contracts say,” he added.John Ketchum, chief executive of NextEra Energy, which operates one of the largest nuclear power fleets in the US, told the Financial Times that new nuclear power would take until “2035 or later”, noting that “we still have to develop the first of a kind advanced nuclear unit that works”.Brian Savoy, chief financial officer of utility Duke Energy, said after his company’s earnings last month that it did not expect SMRs to play a meaningful role until the late 2030s.Video: Are small modular reactors the future for nuclear? | FT Energy Source 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. In a time of so much market uncertainty, every big data release feels that much bigger. But today’s US CPI numbers may be the real thing. Investors are wrestling with what looks like slowing growth, and consumer and business surveys show that Americans are fretting over higher prices. If CPI comes in hot today, the market may buy into the worst-case scenario: stagflation. Stay tuned for what could be another day of market mayhem. And email me: aiden.reiter@ft.com. The pain continuesIf the market had any hope for a “Trump put,” the president may have extinguished it yesterday. Things looked relatively calm on Tuesday morning after Monday’s market rout: futures markets foreshadowed a pick-up, and the chaos did not extend to other countries. The market opened on an upswing.The calm did not last. Around noon, Donald Trump said the US would double the 25 per cent tariffs on steel and aluminium for metals coming from Canada, and the market promptly resumed its slide. A couple of hours later, Ukraine said it would agree to a US-brokered ceasefire — inspiring some confidence in the president’s tactics. Equities ticked up again.After all the ups and downs, there was a final sell-off towards the end of trading, and the S&P 500 finished the day down 0.8 per cent.Yesterday’s rollercoaster only adds to what many analysts told us was the key cause for Monday’s sell-off: tariff uncertainty. Here is Mike Reynolds, vice-president of investment strategy at Glenmede:From our perspective, the movements in the market reflect uncertainty around tariffs — not just the details of what has already been proposed, but also the fact that markets are conditioning themselves to a reality where new tariffs can pop up at any time. It now seems like there is a new tariff every week. Tariff uncertainty is not the same thing as economic weakness — the economic data has been fine and, as Ed Al-Hussainy at Columbia Threadneedle noted, there could still be a pick-up in growth later this year as fiscal stimulus and tariff policies crystallise. Investors and businesses dislike policy uncertainty in and of itself. For businesses, it makes it hard to hire, invest and operate. For investors, after years of great returns and high valuations, it inspires a run for the exit, to protect their gains. Yet to some market participants, the path we are heading down on tariffs and Monday’s fall point to more than just market uncertainty — they signal fears of an economic slowdown. From a recent note by Jan Hatzius, chief economist at Goldman Sachs, which downgraded its US growth forecast on Monday:The reason for [our GDP] downgrade is that our trade policy assumptions have become considerably more adverse and the administration is managing expectations towards tariff-induced near-term economic weakness . . . While President Trump ended up softening the 25 per cent tariff on Canada and Mexico soon after implementation, we expect the next few months to bring a critical goods tariff, a global auto tariff, and a ‘reciprocal’ tariff.The S&P 500 has now shed all of its gains from the run-up to the election and more. Have we just seen a correction, or potentially a slight overcorrection, due to tariff uncertainty? The unwinding of an overcrowded American exceptionalism trade? Or the start of a true economic slowdown — or, perhaps, stagflation — and with it a longer bear run? The slowdown theory is looking like a better bet. Economically sensitive small caps have had major losses. Equity markets in Europe and Asia fell yesterday, too, in a global flight to safety — but none fell nearly as hard as the US did on Monday. And US investors did not rush in to buy the dip at the end of the day on Tuesday.Also, on Monday, spreads between investor-grade corporate bonds, high-yield bonds and Treasuries jumped, after ticking up for a few weeks. According to Robert Tipp, head of global bonds at PGIM, rising spreads are partly a reflection of concerns about the economy, as the president’s recent remarks make it seem that he might not be “unidirectionally focused on improving the economy and protecting US businesses”.Some content could not load. Check your internet connection or browser settings.Yesterday’s equity movements, however, did not neatly fit into that theme, suggesting that the market is still not wholly convinced a slowdown is coming. While the whole market fell, defensives fell the most. And Monday’s biggest losers — infotech and consumer discretionary — fell the least. This makes it seem like investors are correcting for Monday’s wild sell-off, just a bit:It’s possible, then, that this is not the start of a bear market, and is just a case of investors adjusting portfolios to an uncertain world. Moves in the Treasury market were mostly muted; we saw a tiny uptick in yields yesterday, after a tiny downtick the day before. That suggests that investors left Treasuries, rather than dashing to them for safety, on Tuesday. But, according to Brij Khurana at Wellington Management, we may not want to read too much into Treasury moves at the moment:The bond market is somewhat on the sidelines ahead of [Wednesday’s] CPI, which I would consider one of the most important in years considering the equity weakness. If we get a high core print, the market is going to have to contend with a Fed that will not ease aggressively into a slowing economic cycle. That is reminiscent of the [bad] 2018 market experience.We won’t get more clarity on whether this is a correction, a slowdown, or worse until we get more economic data. But we are certainly set for an interesting few weeks. Now that it seems that there is no Trump put, we may get even more tariff shocks and surprises. And markets are certainly bracing for it; Vix futures suggest “high volatility for a while”, says Russell Rhoads at Indiana University. As we wait for more data, it’s best to lead with logic, rather than emotion. There are still a lot of unanswered questions on tariffs and the US economy’s strength. Panic should not rule the day. But, with stagflation on the table, it just might.Correction from yesterday’s letterIn yesterday’s note, we mistakenly wrote that 10-year Treasury prices rose by 10 basis points. It should have said Treasury yields fell by 10 basis points. Our apologies.One good readCritical minerals.FT Unhedged podcastCan’t get enough of Unhedged? 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This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Ukraine has agreed to a 30-day “complete ceasefire” if Russia commits to the same, after negotiations between US and Ukrainian officials in Jeddah yesterday. The talks also saw Washington promise to “immediately” restart suspended shipments of military assistance to Kyiv and intelligence sharing. Meanwhile, the European Commission this morning struck back against Donald Trump’s 25 per cent tariffs on steel and aluminium imports taking effect.Today, Poland’s finance minister tells our economy correspondent that Europe still needs “more” new initiatives to increase the continent’s defence spending, and our competition correspondent reveals a new push from the bloc’s biggest beasts to bolster its chip industry.European ‘awakening’The mood in Europe has shifted towards spending more funds on defence, as demonstrated by the pace and size of recent announcements about increasing military expenditure — but that’s not enough for Poland.“I believe there is something like a European awakening. In recent days some countries changed their positions visibly. I mean, in some cases it was a drastic change,” Andrzej Domański, Poland’s finance minister, told Paola Tamma. But, he added: “There is a need for more.”Context: Poland holds the rotating presidency of the EU and has made security — and the necessary funding — the number one priority of the EU. Warsaw plans to raise defence spending to 4.7 per cent of its output this year, up from 4.1 per cent in 2024 — but wants more funding to happen at EU level.The risk is that if defence funding remains predominantly national, countries like Italy, Spain and France that have high debt and limited fiscal space could find the market appetite restricts their ability to spend more.“We do need to avoid stigmatisation of countries, there are countries who have quite a high level of debt, and we need to provide a solution that would be acceptable and that would work for them,” Domański said.The European Commission last week proposed an initiative to raise €150bn in new loans for member states to spend on weapons, and a relaxation of EU fiscal rules for national defence expenditure.While those are welcome, for Poland “there must be further steps,” Domański said, adding: “First of all, we focus on an EU-wide solution . . . but then of course, we would do whatever it takes to bring security back to Europe.”Polish premier Donald Tusk has promoted the idea of a separate rearmament bank which would be open to non-EU countries and raise hundreds of billions from budgetary guarantees of participating countries.“If there will be no support for it within all 27 member states, then also the intergovernmental solutions are possible,” Domański said.Chart du jour: The American dreamSome content could not load. Check your internet connection or browser settings.Europe is an economic superpower but it now has to mobilise in defence of democracy. Martin Wolf explains how.Cashing in the chipsEurope aims to become a bigger player in the chips that drive the global economy, nine European countries, including powerhouses Germany and France, will announce today in a joint statement seen by Barbara Moens.Context: The global chips race is finding new momentum as Europe is increasingly worried about its vulnerability to American digital infrastructure and services under US President Donald Trump. The European Commission is set to evaluate its Chips Act, potentially leading to an even bigger push for increasing semiconductor manufacturing. “Ensuring a resilient and competitive European semiconductor sector is not just an economic priority but a strategic necessity for prosperity and safety,” states the draft document that the countries are set to adopt on the sidelines of a meeting of EU competition ministers today.The initiative is led by the Netherlands, the home of chip manufacturing equipment giant ASML. For Dirk Beljaarts, Dutch minister of economic affairs, it is key that the nine countries have agreed to a joint approach for the semiconductor industry. In order to strengthen Europe’s position in the semiconductor industry, “the EU must strongly enhance its co-operation,” Beljaarts said.The countries want to increase the production capacity within the bloc and make sure that “new, reliable and innovative technologies are developed and industrialised in the EU,” they will state. In the wake of the Chips Act, the countries also want to discuss “support possibilities within Europe for the long term”.What to watch today EU council president António Costa meets German Chancellor Olaf Scholz in Berlin.G7 foreign ministers meet in Quebec.EU competitiveness ministers meet in Brussels.Now read theseGoing it alone: Sweden will expand its arms and space capabilities without the US, its defence minister has said, amid a push to strengthen European security.Fake roubles: American companies shouldn’t assume that a thaw in US ties with Russia will mean making money there is any easier.Green nerves: A flurry of initiatives from Brussels has caused many in European corporate boardrooms to wonder if the Green Deal is being shelved.‘Return hubs’: Brussels plans to send potentially hundreds of thousands of migrants outside the EU, in a drastic tightening of migration policy.Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. 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