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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When UK Prime Minister Sir Keir Starmer meets Ursula von der Leyen on Wednesday for their first formal meeting to discuss resetting the EU-UK relationship, he will have competition for the attention of the European Commission president.On the same day von der Leyen will also meet Salome Zourabichvili, the president of the former Soviet republic of Georgia, which is a candidate to join the EU and as such is arguably more vital to the bloc’s future than its recalcitrant neighbour across the English Channel.While Georgia is looking to embrace future EU membership, Starmer has explicitly ruled out rejoining the single market and customs union. That position has left diplomats and analysts warning of the legal limits of any EU-UK reset and future political clashes over fishing rights, energy trading and youth mobility.“It will simply be the beginning of the conversation,” von der Leyen’s spokesman said on Monday, in an effort to moderate expectations.“We are open to strengthening EU-UK relations,” added an EU diplomat. “But the red lines remain. The UK wants to stay outside the single market and the customs union. The ball is in the UK’s court. What do they really want?”Nick Thomas-Symonds, the UK Cabinet Office minister with responsibility for the negotiations, was in Brussels on Monday laying the groundwork for the leaders’ meeting.He met Maroš Šefčovič, who will keep the Brexit brief in the commission for a second term, providing much-needed continuity. The Slovak commissioner negotiated the Windsor framework that ended the bitter post-Brexit feud over trading arrangements with Northern Ireland.But analysts say old arguments over energy trading and fishing rights are a potential stumbling block in the coming negotiations because of a “tripwire” clause in the EU-UK Trade and Cooperation Agreement, which explicitly links the two issues.Under the TCA the transitional arrangements for electricity trading with the EU — which benefit the UK — expire in June 2026 at the same time as a transitional deal on fishing rights, which are politically sensitive for coastal EU member states. “This linkage seems to have been forgotten by some people, but there is a real risk that a row over fishing rights comes in and torpedoes all the good will,” said Sam Lowe, UK and EU trade policy adviser at consultancy Flint Global.In a sign of the challenges ahead, France told fellow member states in July that any broader reset with the UK required the same level of fishing access as at present. Two diplomats confirmed that most coastal states, from Spain to Sweden, were behind Paris. The UK energy industry has urged the government not to allow a row over fish to inhibit the ability of both sides to trade green energy generated by wind farms in the North Sea.Adam Berman, director of policy at industry lobbyist Energy UK, said the fish-energy linkage was “deeply unhelpful”.“This is a cliff-edge and we need to get ahead of that. The government must approach these issues sooner rather than later because this is not an issue that can be resolved at the eleventh hour,” he warned.Differences have also already emerged over a “youth mobility deal” to enable young people to travel and work in the EU and UK. Starmer’s government has repeatedly rejected the EU’s initial ideas for an agreement, saying they are too close to the free movement of people ended by Brexit.Despite efforts by EU diplomats to soften the rhetoric around youth mobility ahead of Wednesday’s meeting, EU diplomats briefed on internal discussions say only minor tweaks are expected to the original EU negotiating mandate to make it more palatable to the UK before it is agreed by the end of the year. “The core idea behind the scheme will remain but some parameters might be [changed to be] slightly in favour of the UK,” said one. “It won’t be pared back a lot,” predicted a second EU diplomat.The UK has said that it wants a deal to ease restrictions on touring artists, but the EU side has ruled this out, according to internal documents seen by the Financial Times, because it would require changes to customs and road haulage rules that go beyond the UK’s own red lines.UK ministers maintain “landing zones can be found” on areas of contention, building on the momentum of a summer of summits and bilateral visits to EU capitals by Starmer.Member state ambassadors made clear in a meeting on Monday that any negotiations with the UK must be agreed by them, according to two people briefed on the discussions. They also emphasised the importance of a youth mobility deal, suggesting von der Leyen would raise it in the talks.One early focus will be on a new security pact and improved exchanges between police and security services that could also pave the way to deeper ties in areas such as defence.However, there is also a debate in Brussels about how to integrate British companies in the EU’s rearmament push as part of any security pact, with divisions between large member states on whether to widen access for the UK. France insists that the EU should focus on investing in its own companies. But Andrius Kubilius, the new defence commissioner, told the FT that Britain was “part of Europe”.Additional reporting by Daria Mosolova in Brussels Video: We need to talk about Brexit | FT Film More

TOKYO (Reuters) -Bank of Japan policymakers discussed the need for caution over near-term interest rate hikes with some voicing concern over unstable financial markets and the U.S. economic outlook, a summary of their September meeting showed on Tuesday.Even a proponent of future rate increases called for patience in pulling the trigger, the summary showed, highlighting a dovish shift in the nine-member board that diminishes the chance of a hike in October.”I remain convinced that if it’s confirmed that there will be no major downward revision to our outlook, it’s desirable to raise rates without taking too much time,” one member was quoted as saying at the September meeting.”But rate hikes should not be an end in itself,” the member said, calling for the need to wait for the “appropriate” timing in pushing up borrowing costs.Given economic and market uncertainties, it was undesirable for the BOJ to raise rates further at this point as doing so might suggest the central bank was shifting to a full-fledged monetary tightening cycle, another opinion showed.”Overseas economic uncertainties have heightened. We should scrutinise overseas and market developments closely for the time being,” a third opinion showed, adding that rate hikes can wait until such uncertainties diminish.At the September meeting, the BOJ kept short-term rates steady at 0.25% and its governor said it could afford to spend time eyeing the fallout from global economic uncertainties, signalling it was in no rush to raise borrowing costs further.The BOJ next meets for a rate review on Oct. 30-31, when the board also releases fresh quarterly growth and price forecasts that will be crucial to the bank’s long-term policy path.”In conducting monetary policy, it’s necessary to give due consideration to downside risks to Japan’s economy and monitor data carefully,” a fourth opinion showed, highlighting how the BOJ’s focus was shifting away from the risk of an inflation overshoot towards underpinning a fragile recovery.The BOJ ended negative rates in March and raised short-term borrowing costs to 0.25% in July on the view Japan was making progress towards durably achieving its 2% inflation target.The BOJ’s rate hike in July and Governor Kazuo Ueda’s hawkish comments, coupled with weak U.S. labour market data, triggered a spike in the yen and stock market rout in early August. Since then, BOJ policymakers have stressed the need to take into account the economic fallout from market volatility.The BOJ’s Sept. 19-20 policy meeting came a day after the U.S. Federal Reserve’s decision to deliver an oversized reduction in borrowing costs.The departure of Prime Minister Fumio Kishida, who appointed Ueda and nodded to the BOJ’s policy normalisation, adds to uncertainty over the bank’s efforts to push up interest rates to levels deemed neutral to the economy – which one board member said was at least 1%.At the September meeting, one member said the yen’s sharp reversal from past weaknesses could hurt exports and discourage manufacturers from raising wages, the summary showed.”Uncertainties have heightened about the U.S. economy and the pace of rate cuts by the Fed. Attention needs to be paid to the possibility that these factors will have a negative impact on the yen’s exchange rates and corporate profits in Japan,” another opinion showed.”As for the next rate hike, I’m focusing on developments in consumer inflation, momentum toward next year’s wage talks and U.S. economic developments,” a separate opinion showed. More

TOKYO (Reuters) -Japanese big manufacturers’ business sentiment was steady in the three months to September, a closely watched central bank survey showed on Tuesday, a sign the economy continues to recover despite weakness in global growth.Big non-manufacturers’ mood improved, the Bank of Japan’s (BOJ) “tankan” survey showed, underscoring the strength of domestic demand.The tankan will be among key factors the BOJ will scrutinise in setting monetary policy and releasing fresh growth and inflation forecasts at its next meeting on Oct. 30-31.”Despite the yen’s rebound since mid-July, big manufacturers’ business sentiment remains unexpectedly solid,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Overall results are positive, considering various risk factors such as a stronger yen, pressure to raise wages and downside risks to the global economy.”The headline index for big manufacturers’ confidence stood at +13 in September against +13 in June and in line with a median market forecast.The sentiment index for big non-manufacturers stood at +34, up from +33 in June. It compared with market forecasts for a reading of +32.But the survey found Japanese companies remain cautious about the outlook.While big manufacturers expect conditions to improve three months ahead, non-manufacturers project conditions to worsen, the tankan showed.”Momentum among non-manufacturers could have already faded, including hotels and restaurants that had been boosted by inbound tourism,” said Masato Koike, senior economist at Sompo Institute Plus.Big companies expect to increase capital spending by 10.6% in the fiscal year to March 2025, the tankan showed, smaller than a median forecast for a 11.9% gain and down from an 11.1% increase three months earlier.The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress towards durably achieving its 2% inflation target.BOJ Governor Kazuo Ueda has said the central bank will continue to raise rates if companies keep hiking prices and wages due to optimism over the outlook, and help keep inflation durably around its 2% target.”The tankan showed that business sentiment has not been affected by the July rate hike,” Norinchukin’s Minami said. “Given that the financial markets remain unstable, another rate hike is unlikely in October, but it’s possible in December depending on consumption data,” he added.Japan’s economy expanded an annualised 2.9% in the second quarter as steady wage hikes underpinned consumer spending. Capital expenditure continues to grow, though soft demand in China and slowing U.S. growth cloud the outlook for the export-reliant country.The tankan’s sentiment diffusion indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists. More

TOKYO (Reuters) – The U.S. dollar gained against major peers on Tuesday after Federal Reserve Chair Jerome Powell pushed back overnight against bets on more supersized interest rate cuts.The euro traded not far from Monday’s one-week low following a drop in German inflation to the lowest since early 2021, boosting speculation about another rate reduction this month.The yen steadied close to the middle of its range against the dollar over the past month, after a volatile two days as traders sized up Japan’s incoming prime minister and his cabinet.Australia’s dollar caught its breath following its push to the highest since February of last year on Monday, buoyed by stimulus in the country’s top trading partner, China.The Fed’s Powell adopted a more hawkish tone in a speech at a conference in Tennessee, saying the U.S. central bank would likely stick with quarter-percentage-point interest rate cuts moving forward. “This is not a committee that feels like it is in a hurry to cut rates quickly,” he said. Traders remain certain that the Fed will cut again at the next policy setting meeting in November, but slashed expectations for a 50 basis-point (bp) reduction to 35.4% from 53.3% a day earlier, according to CME Group’s (NASDAQ:CME) FedWatch Tool.The Fed kicked off its easing cycle with a larger-than-expected half-point reduction last month.Powell’s speech came ahead of a heavy week of U.S. data, including the Institute for Supply Management’s manufacturing index later on Tuesday and non-manufacturing report on Thursday, followed by Friday’s potentially crucial monthly jobs figures. “Powell did say that the speed with which the Fed cut rates will depend on the data, so clearly not ruling out the prospect of further 50 bps moves in future,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY).”Friday’s payrolls data may yet prove decisive as to which way the Fed’s axe falls.”The dollar index added 0.07% to 100.85 as of 0055 GMT, after pushing 0.3% higher on Monday.It rose 0.23% to 143.95 yen, after whipsawing from as high as 146.495 yen on Friday to as low as 141.65 yen on Monday.Shigeru Ishiba, due to be confirmed as Japan’s new premier later on Tuesday, is seen by markets as a monetary policy hawk, despite a recent toning down of rhetoric on the need for policy normalisation.He won his party’s leadership vote on Friday in one of the closest-ever races, and is now attempting to unify the party after calling a snap general election for Oct. 27.The euro was flat at $1.1132 after dropping as low as $1.1113 in the previous session.Data on Monday showed inflation in Germany cooled more than expected in September to its slowest rate since February 2021. Inflation also slowed in Italy.European Central Bank President Christine Lagarde told parliament “the latest developments strengthen our confidence that inflation will return to target in a timely manner,” and this should be reflected in the Oct. 17 policy decision.The Aussie was little changed at $0.6914, after advancing to $0.69435 on Monday.Over the weekend, China’s central bank ordered lenders to lower mortgage rates by the end of October. A slew of mega-cities such as Guangzhou, Shanghai and Shenzhen also dramatically eased home-buying restrictions.The yuan eased on Tuesday to 7.0116 per dollar in offshore trading, after sliding about 0.36% overnight on the prospect of further monetary easing.China begins its Golden Week holiday from Tuesday, when onshore financial markets will be shut. More

Exports increased 7.5% in September from a year ago, decelerating from an 11.2% rise in the previous month, the customs service agency reported on Tuesday. The result, which beat the 6.5% consensus estimate from analysts, was driven by slower shipments growth of 1% to the United States in September after increasing 11% in August. Tuesday’s data comes amid growing market expectations that the Bank of Korea may cut policy interest rates from 3.50%, the highest since late 2008, at an upcoming rate-setting meeting next Friday as growth concerns overshadow inflation worries. Imports climbed 2.2%, falling short of the 3.0% rise forecast by analysts.The preliminary trade surplus widened to $6.66 billion from $3.77 billion a month earlier.In September, there were also fewer working days due to a longer break for the Chuseok thanksgiving holiday. More

SYDNEY (Reuters) -Qatar Airways will buy a 25% stake in Australia’s No. 2 airline Virgin Australia from U.S. private equity firm Bain Capital, the companies said on Tuesday, as the Gulf carrier looks for access into Australian routes that the government denied last year.The purchase of the minority stake for an undisclosed amount gives more scale for Virgin Australia to pursue an initial public offering and better compete with rival Qantas Airways, which dominates the domestic aviation market and has pushed back against giving more access to the Middle Eastern carrier.The deal will now need to be signed off by Australia’s government, which denied Qatar Airways’ requests last year to fly additional services into Sydney, Melbourne, Brisbane and Perth.”This partnership brings the missing piece to Virgin Australia’s longer-term strategy,” Virgin Australia CEO Jayne Hrdlicka said in the statement.The stake sale also serves as a cornerstone investment ahead of an anticipated return of Virgin Australia into public ownership, the companies said.Bain said last year it would explore an IPO of Virgin Australia, which it bought for A$3.5 billion ($2.42 billion) including liabilities after it was placed in voluntary administration in 2020.Bain was targeting an A$1 billion listing, but the plans were delayed, Reuters reported last year.Bain declined to comment further on the IPO plans.GOVERNMENT APPROVALAs part of the deal with Qatar Airways, Virgin Australia plans to launch flights from Brisbane, Melbourne, Perth and Sydney to Doha with leased aircraft by mid-2025, subject to approval from Australia’s competition regulator. That would allow Qatar to gain more traffic to its Doha hub, regardless of whether the Australian government approves Qatar Airways’ push for more flying rights.The denial last year brought the Australian government’s relationship with Qantas, which lobbied against more access for the Qatari carrier, into the limelight. Qantas has a partnership with Dubai-based Emirates, a fierce rival of Qatar Airways.Qantas did not respond immediately to a request for comment.Qatar Airways CEO Badr Mohammed Al Meer said his airline believed competition in aviation was “a good thing and it helps raise the bar, ultimately benefiting customers.”Australia’s Foreign Investment Review Board must approve the sale of the Virgin Australia stake to Qatar Airways, but the treasurer has the power after that to accept or reject the recommendation and impose conditions on the deal.”It wouldn’t be appropriate for me to pre-empt that process or comment further,” Australian Treasurer Jim Chalmers told reporters after the deal was announced. “More broadly, we do want to see a strong, secure airline industry that delivers for consumers.”Qatar Airways also owns minority stakes in British Airways owner IAG, Hong Kong’s Cathay Pacific Airways (OTC:CPCAY) and China Southern Airlines.($1 = 1.4474 Australian dollars) More