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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Eurozone inflation unexpectedly ticked up in January to stay above the European Central Bank’s medium-term 2 per cent target for the third month in a row, but the rise was not expected to alter policymakers’ plan to continue lowering interest rates.The bloc’s statistical office Eurostat reported on Monday that consumer prices in January were 2.5 per cent higher than a year ago, above analysts’ expectations of a 2.4 per cent rise, and up from 2.4 per cent in December. However, the recent months of higher inflation — the figure was 1.7 per cent in September — have largely been driven by energy prices that detracted from headline inflation. The acceleration from September is not expected to influence the direction of monetary policy because inflation over the past few months has still been softer than the ECB had forecast.The inflation numbers comes as US President Donald Trump announced an executive order imposing 25 per cent tariffs on Canadian and Mexican goods starting on Tuesday, though Canadian energy products are to be subject to a 10 per cent levy. He also imposed an additional 10 per cent tariff on goods from China.Trump said a 10 per cent levy on EU goods would “definitely happen”. Economists warn that a US tariff at that level on Eurozone imports and wider economic uncertainty could hit growth in the currency bloc by up to 0.5 percentage points within a year.EU leaders have vowed to retaliate against possible tariffs imposed on the bloc. But Bert Colijn, economist at ING, warned that retaliatory tariffs from the EU would fuel inflation because tariffs usually resulted in higher consumer prices. “With inflationary risks still prevalent and uncertainty increasing, the question is how low the ECB can push rates to give the economy more breathing room,” he added.Services sector inflation was still significantly above the ECB’s target at 3.9 per cent in January, but the central bank is confident it will come down this year as a result of easing wage pressures. Core inflation, which strips out volatile food and energy prices, was 2.7 per cent, unchanged from December and above analysts’ expectations of a 2.6 per cent rate. “January’s inflation data won’t change ECB policymakers’ minds about the likely near-term path for interest rates,” said Jack Allen-Reynolds, economist at the consultancy Capital Economics. “The fact that services inflation remained high will mean that they will prefer to loosen policy in small steps.”The central bank last week lowered interest rates for the fifth time since June by a quarter point to 2.75 per cent, reflecting confidence that inflation will come down to its 2 per cent target over the course of the year. Annual price rises hit a peak of 10.6 per cent in late 2022 following a surge in energy costs. “The disinflation process is well on track,” ECB president Christine Lagarde stressed last week, strongly hinting that further rate cuts were likely.“We know the direction of travel,” Lagarde said after Thursday’s decision, suggesting it was downwards, adding that the speed, timing and magnitude of future rate moves were going to be decided meeting by meeting. Official data published last week showed that the Eurozone economy registered no growth in the final three months of 2024, marking a sharp slowdown from the 0.4 per cent growth in the previous three months. German GDP contracted 0.2 per cent in the final three months of 2024 compared with the previous quarter, while France’s economy unexpectedly shrank 0.1 per cent. Output was flat in Italy. More
$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump’s tariffs shook markets on Monday, with the dollar surging and global equity markets sliding as investors rush to assess how the levies will affect the US and its biggest trading partners.The US dollar surged as much as 1.4 per cent against a basket of currencies before trimming its gains to 1.3 per cent. The Canadian dollar hit its lowest level since 2003, Mexico’s currency tumbled by almost 3 per cent and the euro slid 1.3 per cent.Asian stocks dropped while US stock futures also fell sharply, with contracts tracking the benchmark S&P 500 losing 1.9 per cent and those tracking the Nasdaq 100 sliding 2.5 per cent.The Stoxx Europe 600 and the UK’s benchmark FTSE 100 were both down 1.3 per cent in early trading.The moves came after Trump on Saturday imposed 25 per cent tariffs on imports from Mexico and Canada, a 10 per cent levy on Canadian energy and tariffs of 10 per cent on imports from China. He also threatened tariffs against the EU. Trump admitted in a post on Truth Social, his social network, that there would “maybe” be “some pain” from his tariffs. “But . . . it will all be worth the price that must be paid,” he wrote on Sunday.Global investment banks warned that the tariffs would hit the US economy alongside the rest of the world. Analysts at UBS and Morgan Stanley forecast that if the tariffs were sustained they could halve US real GDP growth this year — reducing it by more than 1 percentage point.The US two-year Treasury yield rose 0.07 percentage points to 4.27 per cent, while the 10-year yield was up 0.01 percentage point to 4.55 per cent.“There was some optimism in the market that [tariff threats] were just for negotiation, but the market may have underestimated the determination of the Trump administration,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas.Economists have warned that the tariffs are likely to accelerate inflation in the US. “The clearest implication is a stronger dollar,” said Eric Winograd, chief economist at AllianceBernstein. “A long dollar position is the cleanest, clearest expression of the trade war that is now being launched.”“A strong dollar is a disaster for emerging markets,” said Trinh Nguyen, economist for emerging Asia at Natixis, who said developing economies would be hit by “less appetite for risk assets” and larger dollar-denominated debt burdens.Japan’s export-heavy Nikkei 225 closed down 2.7 per cent while the Topix fell 2.5 per cent. South Korea’s Kospi benchmark shed 2.5 per cent and the country’s currency dropped 1.1 per cent against the dollar to Won1,469.7.After falling in early trading, Hong Kong’s Hang Seng index pared its losses to close flat. Mainland China’s stock market is closed until Wednesday.China’s offshore renminbi, which trades freely, slid as much as 0.7 per cent to Rmb7.37 a dollar on Monday morning before paring back its losses to 7.34. Oil prices climbed in early Asian trade, with international benchmark Brent crude up 0.6 per cent at $76.13 a barrel.Other commodities that are treated as proxies for Chinese and global economic growth fell. LME copper fell 0.7 per cent to $9,064 per tonne, while nickel and aluminium both fell more than 1 per cent.Crypto markets also plunged as traders pared back exposure to risk assets. Ethereum, the second-largest coin, fell as much as 27 per cent. Bitcoin is down 2.2 per cent to $95,581 per coin.George Saravelos at Deutsche Bank said the tariff announcements were “at the most hawkish end of the protectionist spectrum we could have envisaged”, and that markets needed to “structurally and significantly reprice the trade war risk premium”.The Mexican peso has whipsawed in recent weeks as traders have scrutinised the new Trump administration’s announcements for clues about any tariffs.“If the tariff stays on for several months the exchange rate will reach new historic highs,” said Gabriela Siller, chief economist at Mexico’s Banco Base, referring to the number of pesos per dollar. “If the tariff stays on it will be a structural change for Mexico . . . and Mexico could go into a profound recession that would take years to come out of.”Economists at Morgan Stanley said the tariff announcements and implementation had come faster than expected, warning that the risk of retaliatory escalation from Beijing was “high”. More
