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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.US President Donald Trump’s barrage of economic policies is a “real, genuine fundamental wake-up call” that is forcing Europe to address its competitiveness problem, according to the chief executive of the region’s biggest stock exchange operator. Stéphane Boujnah, head of Paris-based Euronext, said recent reports from Mario Draghi and Enrico Letta on competitiveness and the future of the single market, “combined with the shock created by the initial decisions announced by the Trump administration”, had led European policymakers to address “the structural weaknesses in Europe”.Trump has launched a blitz of policies in his first month in office — including tariffs against the US’s biggest trading partners — in staunch support of American businesses and jobs. His moves have left European policymakers rushing to protect the bloc and catch up at a time of stagnant economic growth. “Things will change [but] like everything in Europe it might take longer,” Boujnah added. Trump’s policies mean the valuation gap between US and European assets “is not justified”, he said. Fund managers were “in the process of connecting [the] dots” when it came to the impact of Washington’s new economic approach, Boujnah added, and have been pouring money into the continent’s undervalued markets. “If you restrict immigration, if you increase tariffs, if you reduce taxation and if you increase spending, at some point of time gravity leads to additional inflation,” said Boujnah, who has led Euronext since 2015 and previously worked as an M&A banker.The pan-continental Euro Stoxx 600 index has risen 8 per cent so far this year, outstripping the S&P 500 which has gained 3.5 per cent. “The US is perceived as being overvalued in many segments and Europe is perceived as being undervalued,” he said, adding that global asset managers were focusing on Europe “to capture undervalued growing assets”.He was speaking as Euronext reported €1.6bn in revenues for 2024, a 10 per cent increase on the previous year. The company runs stock exchanges in Amsterdam, Paris and Dublin, among other cities, and reported a 5 per cent rise in revenues from initial public offerings. On Thursday, Unilever said its ice-cream business would have a primary listing in Amsterdam rather than London, and Boujnah said the company had faced “very strong pressure coming from all over the world to consider alternatives”. More

Monterrey has grown rich on North American free trade. Industrial parks catering to some of the world’s biggest companies line the six-lane highway to the airport, while the city’s sleek high-rises sprawl across an ever-increasing area between the mountains.The regiomontanos, as local people are known, are hard-headed and entrepreneurial, or as one executive said: “While others cry, we sell the handkerchiefs.” Some admire President Donald Trump’s pro-business, anti-woke line.So Monterrey’s business leaders believe they can weather Trump’s threats to upend the free trade deal linking Mexico, the US and Canada.Julio Escandón, chief executive of Banco Base More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Thyssenkrupp has warned that Donald Trump’s steel tariffs could deepen Europe’s overcapacity problems by squeezing the bloc’s exports while prompting Chinese producers to flood the market with even more shipments.Jens Schulte, chief financial officer of the steelmaker, told reporters on Thursday that the company would analyse “over the next couple of months” the indirect impact of the tariffs, which the US president announced on Monday.Schulte said the tariffs, of 25 per cent on all imports of steel and aluminium into the US, could prompt the world’s largest steel exporter to divert excess output to Europe.“It is possible that the Chinese players that deliver into the US today, and will now face higher tariffs, could try to deliver more into Europe,” Schulte said.European steelmakers last year called on EU regulators to take action over cheap Chinese imports as prices fell below the cost of production amid elevated energy costs in the region.Thyssenkrupp’s steel business — once a jewel of German industry — has suffered from a slump in European demand, driven by lower production by the region’s carmakers. In November, it announced a plan to slash 11,000 jobs — roughly 40 per cent of the Duisburg-based steel division’s work force — as it sought to reduce its production capacity by up to a quarter.Over the past two years, Thyssenkrupp has slashed the value of its steel unit by €3bn through a series of writedowns. At the same time, the company has been locked in negotiations with Czech billionaire Daniel Křetínský, whose plan to raise his stake in the steelmaker from 20 to 50 per cent has dragged on.Schulte made his comments after Thyssenkrupp on Thursday said an advance payment of €1bn to its naval division for a large submarine contract meant it expected cash flow before mergers and acquisitions to reach €300mn this year. The figure is a significant improvement on its previous guidance of a loss between €200mn and €400mn. Thyssenkrupp’s shares were up 9 per cent in mid-morning in Frankfurt on the news.Miguel López, Thyssenkrupp’s chief executive, said in a statement the company was “working hard” on the planned spin-off of its naval business Thyssenkrupp Marine Systems. The company developed plans to list a minority stake in the business after US private equity group Carlyle in October withdrew its interest in a partial takeover. Berlin had been hesitant over the potential sale of a strategically important company to a foreign entity. 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. Oil major Chevron plans to cut 20 per cent of its 46,000-person workforce as part of an efficiency drive. Whether Chevron’s leadership took this decision because they believe President Donald Trump is going to cut US energy prices by half, as he promised on the campaign trail, is unclear. Send me your oil price predictions: [email protected]. InflationJanuary’s CPI inflation reading was bad, and particularly bad measured the way Unhedged prefers, annualising the month-to-month changes:Note that food and energy are excluded in that chart, so runaway egg prices were not a contributor. Instead, what we got was a notably broad-based increase in prices, for goods and services alike. Shelter inflation, with its very high weighting in the index, is not as bad as it was six months ago, but it’s still a big reason why the index is above the Federal Reserve’s 2 per cent target. And the problem is not just the lagging measure of imputed (“owner’s equivalent”) rent. Plain old rent is trending higher the last two months:There was a particularly high jump in volatile price series such as used cars, airline tickets and car insurance. Used cars, for example, have just a 2 per cent weighting in the overall index, but their increases recently are big enough to make a difference:It is tempting to look past steep rises in volatile prices, but the temptation should probably be avoided. As Jason Furman of Harvard summed up in a tweet yesterday:Flukes . . . elevated January inflation. But in the nearly thirty years from 1992 to 2019 there were also all sorts of flukes. And this is at the 99th percentile of 3-month core inflation over that period. That is the issue: the good months are normal but the bad months are horrible.The “January effect” may be at work here, too: the index’s seasonal adjustments struggle to deal with the wave of annual price increases that occur in the first month of the year. Bob Michele of JPMorgan Asset Management points out that January inflation has surprised to the upside in 14 of the past 15 years. But the Fed (and the rest of us) can’t write off this month’s numbers on these grounds. All we can do now is wait and see if the next few months are better.In all, yesterday’s numbers provide support for the Fed keeping rates where they are for now, and suggest that there might be no cuts at all this year. Given this, the market reaction to the report was slightly puzzling. Stocks fell only slightly on the day. And the yield curve steepened slightly, with 10 and 30-year Treasuries moving more than the two-year. One might have expected a higher-for-longer Fed meant higher short-term rates and lower long-term growth prospects, and as such a flatter curve.The muted reaction from stocks makes more sense when you remember that we have had quite high rates for more than two years now, and corporate earnings growth has kept on humming. It appears that Fed policy only transmits to quite specific parts of the modern corporate economy, and indeed stocks in those parts — homebuilders and construction-related businesses — did take a hit yesterday. On the yield curve, Jim Caron of Morgan Stanley offered me a tidy explanation of the steepening: while after yesterday’s report the Fed looks more likely to keep rates at their current high level for longer, they remain unlikely to increase rates. “There is little risk . . . the Fed [will] hike rates while at the same time it seems that inflation risks are rising. This is causing a natural adjustment in risk premia to rise in longer-term bonds,” he said. This, it seems to me, is a way of saying that the market is pricing in a higher long-term neutral rate of interest. The market is not just adjusting to higher for longer; it’s adjusting to the possibility of higher forever.Bonds, stocks and constitutional crisisOver at Marginal Revolution, Tyler Cowen raises a challenging and daunting question. How do markets respond if Trump, as some commentators worry he might, ignores court orders blocking his policies, sparking a constitutional crisis?Which are the securities prices that would indicate an actual constitutional problem? Particular equities? Interest rates? The value of the dollar? Measures of volatility? Something else?I am allergic to the view that ‘fascism could come and market prices would not even budge’ . . . I think fascism, or a constitutional collapse, would be a terrible outcome in a variety of very practical ways . . . So people, on this question, which exactly are the measurable, market price indicators?Before I take a shot at this, three clarifications. First, in the case of a constitutional crisis, what markets do will of course be a minor concern. Next, I’m not taking any position on the question of how likely such a crisis is, except to note that the question is in the air. Finally, while I share Cowen’s view that constitutional collapse would be terrible economically (that’s what I take him to mean by “practical” above), I do not share his confidence that this implies the market would respond to such a collapse in a well-calibrated, easy-to-read way. My sense is that markets are bad at discounting political risk, and that the likely response would be pretty erratic.But that doesn’t mean there would be no response. Start with bond yields, breaking them into inflation expectations and real rates. If the president decides to override one independent institution (the courts), perhaps it is natural to think he will then override another (the central bank). If he did, that would drive inflation expectations up. But I think this president really cares about popularity, and remembers what high inflation did to his predecessor. If inflation keeps running hot, I think Trump will stay out of the Fed’s way, even if he begins to trample the court.That leaves real rates. And it seems to me that in a system where the president is no longer bound by the constitution, real rates and in particular long-term real rates have to rise, because investors will demand a higher term premium to own US debt. One might be confident that a particular imperial president will run sane monetary (or fiscal) policy, but who knows what the next one will do. In a Trumpian constitutional crisis, I would expect long rates to rise more than short rates.On to stocks. Let’s disaggregate again, this time into earnings expectations and valuation multiples, and further break down earnings expectations into short and long term.Whether short-term earnings expectations fell in a constitutional crisis would depend largely on how consumers responded. Do some of them respond to the crisis by putting off non-essential purchases, especially big items such as new cars or home renovation projects? If so, there would be a pretty sharp earnings shock. But perhaps another group of consumers would feel nothing but relief when the meddling courts are swept aside. It could be a wash; I really have no idea. What I am confident about is that a breakdown in the constitutional order would reduce capital investment, and therefore long-term earnings growth. What global company would not moderate their long-term investments in a lawless America?The question of what happens to valuation multiples is much harder. Reflexively, one might think that a constitutional collapse would reduce the large premium currently paid for US risk assets. But I’m not sure. Remember, by way of analogy, the way the dollar tends to strengthen when the US economy is in bad shape. The idea is that when America is in trouble, the world is in trouble, and that a troubled world rushes for the safest currency, the dollar. Similarly, if the world is suddenly in the shadow of an imperial America, might the shares of a large US company be the safest place to put your money? I’m not very confident in any of these views, and clearly there is much more to say. I would be keen to hear from readers.One good readCold football.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

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a research associate at the Financial Markets Group, London School of EconomicsThere is much speculation that the UK government will have to cut spending in order to abide by the fiscal rules. With growth already weak, there are widespread fears of a “doom loop” whereby lower government spending leads to weaker GDP growth which necessitates further fiscal tightening. Therefore, I propose measures which should reduce fiscal pressures and stimulate investment spending at the same time.It is important to observe that, currently, the interest rate paid by the UK government on its borrowing appears to incorporate a market expectation that inflation will turn out to be rather higher than the Bank of England’s target of 2 per cent. This is in contrast to, say, the US or the Eurozone, where the markets appear to expect inflation to be in line with their respective targets. In the jargon, the inflation risk premium in the UK is about 1 percentage point versus about zero in the US or Eurozone.Any action by the government that helped reduce the IRP in the UK would help cut government spending. Indeed, if gilt yields fell by an amount equivalent to the current IRP, that would deliver a direct, cumulative saving of around £21bn over a five-year period. This calculation understates overall benefits to the economy as it excludes the indirect effects of lower long-term interest rates, such as a boost in corporate investment and thereby growth. On the other hand, one reason the IRP is high may be, for example, due to a perceived lack of credibility of the BoE. This may take time to change.When I discuss the higher IRP in the UK with market participants, they often tell me that they believe that the country will be tempted to inflate away the high government debt. They point to the attack by Liz Truss as prime minister on independent economic institutions. Even if the current government believes that no one thinks it wants to amend the inflation target, markets worry that some future chancellor might be tempted to do so. Therefore, the current UK government needs to ensure that its successors find it either more difficult to mandate higher inflation or are less tempted to do so.Of course, the UK government sets the inflation target. By contrast, in the US and Eurozone, the independent central banks pick their own definition of price stability. Markets believe that it is easier for politicians to amend the inflation target than for independent technocrats to change their definition of price stability. Therefore, the UK government should consider handing over the setting of the inflation target to the BoE in order to somewhat reduce the IRP and hence its debt interest bill.In addition, the temptation to “inflate away the debt” would obviously be significantly curbed by issuing more index-linked gilts — bonds with payouts that are adjusted for inflation. Markets would see this as a signal that the UK government believes that the inflation target will be hit and that they should thus reward them with a lower IRP.Recent analysis by the UK Debt Management Office shows that for gilts that have matured since their introduction in 1981 up to August 2023, the government has saved as much as £158bn (in 2023 pounds) in total from the issuance of ILGs. Yet, the government has actually reduced the proportion of ILGs in recent years. Prior to 2018-19, ILGs accounted for around 25 per cent of the annual debt issuance. In the five years since, it fell to around 14 per cent of annual gilt issuance. As it happens this reduction was, evaluated over the short-run, fortuitously timed as some of it came before the 2021-23 inflation spike to well above the inflation target.But, looking forward, given the government continually repeats that it expects the inflation target to be met, it should put its money where its mouth is by significantly increasing the proportion of ILG issuance. Authorities may be deterred from issuing more ILGs by the risks to the public finances from an inflation spike. But the government is often in a much better position to bear inflation risk than those in the private sector. And the perceived risk could be mitigated by reform to how the Office for National Statistics accounts for an inflation spike. It considerably exaggerates the true underlying impact by showing the rise in the eventual redemption costs of the ILGs immediately instead of smoothing it in over the lifetime of the gilts.The government should revisit the cost-benefit analysis associated with ILG issuance. Combined with handing over the setting of the inflation target to the BoE, that would send a powerful signal to investors and save money even if the IRP proves to be impervious to these government actions. More

Narendra Modi is expected to offer Donald Trump deals on trade, energy and defence in a meeting the Indian prime minister hopes will help fend off US action on tariffs and migration. India is billing Thursday’s meeting in Washington, their first since Trump’s inauguration, as a warm meeting of like-minded leaders. However, analysts and people briefed on the trip say Modi will seek to placate a president who has previously called India a “tariff king” and “big abuser”.While the world’s fifth-largest economy is not a top global exporter, it has high average tariffs and ranks 10th among countries with which the US has a deficit. Between January and November 2024, India’s trade surplus with the US was worth $35bn.On his campaign website, Trump warned that under a planned “reciprocal tariff act”, the US would match trading partners “an eye for an eye, a tariff for a tariff, same exact amount” and the rupee exchange rate and equity markets have been roiled by recent presidential pronouncements on trade.“Modi will be looking to reinforce India’s growing security and economic ties with the US and his personal equation with Trump,” said Priyanka Kishore, founder of research company Asia Decoded, who expects Modi to offer tariff concessions and to pledge to import more American oil and gas.India Business BriefingThe Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up for the newsletter here “India needs to avoid a rupture in commercial ties,” said Richard Rossow, chair on India and emerging Asia economics at the Center for Strategic and International Studies. “Engaging President Trump early, perhaps armed with new purchases of American goods and resolving a few areas of trade friction, should help set a relatively positive course for the next four years.” A person familiar with details of the visit said it was “quite clear” Trump expected India to buy more from the US, including American oil. Last year the US supplied India with about 65mn barrels of crude, just over one-tenth of the 630mn it imported from Russia, its biggest supplier.Hardeep Singh Puri, India’s oil minister, declined to be drawn in an interview with the Financial Times on Wednesday on whether India would provide concrete undertakings to buy more energy from the US. “It’s entirely possible: more energy interaction with different countries of the world, including in particular the United States,” Puri said. Some content could not load. Check your internet connection or browser settings.New Delhi took pre-emptive action ahead of Modi’s trip, unveiling budget plans to slash duties on imports including textiles and motorcycles — the latter measure addressing longtime Trump complaints about the costs imposed on US producer Harley-Davidson. In a phone conversation last month, Trump pushed Modi to buy more American weapons. The US is already one of the largest sellers of helicopters, transport and maritime patrol aircraft and other hardware to the world’s biggest arms-importing country. Under the Biden administration, General Electric signed an agreement to co-produce advanced jet engines with India’s state-owned Hindustan Aeronautics. Final details of the deal are still under negotiation. Indian media have speculated that Modi might also meet Trump ally Elon Musk, who has in the past voiced interest in investing in the world’s most populous country through his companies SpaceX and Tesla.SpaceX’s Starlink satellite internet service has applied for permission to operate in the country, where it would take on internet companies Bharti Airtel and Reliance Industries. Tesla looked last year at building its first electric vehicle plant in India, but Musk then abruptly postponed a planned India visit, travelling to China instead.In a move seen as appeasing Washington, India last week also quietly accepted a military flight carrying 104 undocumented Indian migrants, some of whom were restrained with handcuffs and leg chains.Opposition lawmakers disrupted parliament to protest against the treatment of the migrants, which Gaurav Gogoi, an MP from the opposition Indian National Congress, called “degrading”. Outside the Americas, India is one of the largest sources of illegal border crossers from Canada and Mexico into the US and the future of visas for skilled Indian migrants from India and elsewhere has been questioned by the new administration. Trump’s inauguration has prompted speculation that two high-profile US legal cases opened during Biden’s presidency might be resolved.In October US authorities charged Vikash Yadav, a former Indian government employee, for his role in an alleged foiled assassination attempt against Sikh activist Gurpatwant Singh Pannun. Yadav is in India and has not entered a plea. His alleged co-conspirator, Nikhil Gupta, pleaded not guilty in a US federal court last June. Some content could not load. Check your internet connection or browser settings.Trump announced this week that the US would stop enforcing the Foreign Corrupt Practices Act, with existing cases brought under the legislation banning bribery of other countries’ officials to be reviewed.It is unclear what this will mean for the Adani Group, whose founder Gautam Adani alongside seven others was charged by the US justice department and Securities and Exchange Commission with involvement in a multiyear scheme to bribe Indian officials for solar power business.  Adani and his nephew Sagar Adani were charged with securities fraud, but not under the Corrupt Practices Act. Adani Group has called the accusations “baseless”.Outwardly, the Trump-Modi relationship remains upbeat, reflecting past friendly ties between the two leaders and expanding US-Indian defence, technology and other co-operation designed to counteract China.India Business BriefingThe Indian professional’s must-read on business and policy in the world’s fastest-growing economy. Sign up for the newsletter hereIn an interview on the Flagrant podcast in October, Trump described the Indian leader as “a friend”, “the nicest” and, apparently in jest, “a total killer”. “The fact that the prime minister has been invited to visit the US within barely three weeks of the new administration taking office shows the importance of the India-US partnership,” Vikram Misri, India’s top diplomat, said last week. The two leaders had a “very close rapport” dating back to Trump’s first term, Misri said. “India has been for some time, particularly under Modi, one of the most pro-American countries in the world,” said Indrani Bagchi, chief of the Ananta Centre, a think-tank in New Delhi. “We are also in the business of making India great again, so there are areas where we can build some synergies that are useful.”Additional reporting by Leslie Hook in London; data visualisation by Haohsiang Ko More

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