Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In the cult film The Princess Bride, the hero Westley tricks a villain, Vizzini, into killing himself in a battle of wits. Vizzini has to choose between two cups of wine, one of which Westley says is poisoned. In fact, Westley’s cup is also poisoned, but he survives: he had spent years building up immunity to the toxin. Through long and careful preparation, Westley won the battle of wits long before it had begun.Substitute Xi Jinping for Westley and Donald Trump for Vizzini, and this week’s US-China trade talks in London make a lot more sense. They didn’t end in the US lying dead on the ground, but not far off. The sides agreed a comically vague framework of co-operation, with the US asking for a handshake to seal the deal — an activity at which Donald Trump, as it happens, is famously poor.Nor is he much good at negotiating. Beijing is the clear winner in these early skirmishes. Trump has now lifted most of the extraordinarily punitive tariffs he has imposed on China since his inauguration. What he got back this time was China vaguely promising to lift the restrictions on rare earth exports it imposed on April 4, as plaintively requested by his chief economic adviser Kevin Hassett.As I wrote recently, China’s decision in April to cut off exports of certain rare earth minerals is a much more surgical strike than previous ineffectual scattergun restrictions. The restrictions of the early 2010s were undermined by the expansion of mineral production outside China and through smuggling by its notoriously lawless miners and processors.The latest round of restrictions focuses on the less common “heavy” rare earth elements such as dysprosium, which has no large rival producers outside China and whose price shot higher after the controls were announced. Since the 2010s, Beijing has clamped down heavily on wildcat rare earth production and smuggling. Production is dominated by a small number of tightly state-controlled companies, and the latest controls are imposed via “dual-use” export licensing for products used in defence manufacturing. This makes it much easier for the authorities to control the supply chain.The Chinese state certainly has its own issues with judgment and co-ordination. Its rare earth controls are threatening economies Beijing is trying to pull out of the US orbit. European car manufacturers have complained volubly.Alienating all buyers of rare earths is politically risky, but China is at least differentiating somewhat between European companies and American ones. Suppliers to Volkswagen, which has more than 30 plants in China, were among the first to receive a licence to buy rare earths. Beijing is managing to clear the low bar of exceeding the Trump administration’s competence by some distance.US weapons, although formidable, are harder to target precisely. Just as the UK was wrongly convinced that its trade deficit with the EU gave it the superpower Brexit weapon of access to the British consumer, Trump thought prohibitive tariffs on Chinese imports would bring Beijing to heel.There’s no doubt China is vulnerable, having maintained dependence on overseas demand by clinging to its traditional export-oriented growth model. But Trump’s untargeted tariffs meant US companies risked losing key industrial inputs, as well as shelves potentially emptying of consumer goods.As for the US’s own attempts to use export controls to crimp China’s economy, its tools have proved too easily circumvented. Joe Biden’s administration used restrictions on US technology and outward investment to slow China’s technological development in semiconductors and other sectors, and leaned on allies to do the same.It didn’t really work. China rapidly developed its own chip technology. Similarly, it’s unlikely that Trump’s recent restrictions on the export of chip software will allow the US to regain ground lost to China.Trump’s attempt to fight on China’s own ground of controlling critical physical inputs by restricting exports of ethane, a gas used in the chemical industry, is more likely to damage his country’s companies and those of allies. The US still has some extremely powerful weapons, such as restricting access to the global dollar payment system, but their use on a large scale is untested.The triumph of the serenely calculating Westley over the bombastically ignorant Vizzini is a truly great moment in cinema. If Trump wants to win the next round, he is going to have to assess the ordnance at his disposal and deploy it far more accurately. History does not suggest this is a likely [email protected] More

The consumer price index increased 0.1% for the month, putting the annual inflation rate at 2.4%.
Excluding food and energy, core CPI came in respectively at 0.1% and 2.8%, compared to forecasts for 0.3% and 2.9%.
Weakness in energy prices helped offset some of the increases, and a handful of other key items expected to show tariff-related jumps, vehicle and apparel prices in particular, actually posted declines.

Consumer prices rose less than expected in May as President Donald Trump’s tariffs had yet to show significant impact on inflation, the Bureau of Labor Statistics reported Wednesday.
The consumer price index, a broad-based measure of goods and services across the sprawling U.S. economy, increased 0.1% for the month, putting the annual inflation rate at 2.4%. Economists surveyed by Dow Jones had been looking for respective readings of 0.2% and 2.4%.

Excluding food and energy, core CPI came in respectively at 0.1% and 2.8%, compared to forecasts for 0.3% and 2.9%. Federal Reserve officials consider core a better measure of long-term trends, with several expressing concerns recently over the impact that tariffs would have on inflation.
The all-items annual rate marked a 0.1 percentage point step up from April while core was the same.
Continued weakness in energy prices helped offset some of the increases, and a handful of other key items expected to show tariff-related jumps, vehicle and apparel prices in particular, actually posted declines.

Energy slipped 1% on the month, while new and used vehicle prices posted respective declines of 0.3% and 0.5%. Within energy, gasoline posted a 2.6% drop that took the year-over-year decrease to 12%.
Food increased 0.3% as did shelter, which the BLS said was the “primary factor” in the otherwise modest CPI increase. Egg prices fell 2.7% but were still up 41.5% from a year ago. Apparel posted a 0.4% drop.

Though shelter prices rose on the month, the 3.9% annual increase is the lowest rate since late-2021.
With the modest inflation moves, real average hourly earnings increased 0.3% for the month and were up 1.4% from a year ago.
“Today’s below forecast inflation print is reassuring – but only to an extent,” said Seema Shah, chief global strategist at Principal Asset Management. “Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize.”
Stock market futures turned positive after the report while Treasury yields were lower.
Echoing Trump, Vice President JD Vance, in a post on X, called on the Fed to cut interest rates as inflation pressures have failed to materialize.
“The president has been saying this for a while, but it’s even more clear: the refusal by the Fed to cut rates is monetary malpractice,” Vance wrote.

Trade tensions persist

The BLS report comes with the Trump administration continuing in efforts to negotiate trade deals. In his April 2 “liberation day” announcement that rocked financial markets, Trump slapped 10% universal duties on U.S. imports and a host of other so-called reciprocal tariffs on countries he said have been using unfair trading practices.
Most recently, White House officials have met with Chinese leaders in an effort to defuse a blistering trade war between the two nations. Leaders from both countries have said they are near an agreement on rare-earth materials, such as resources needed for automotive batteries, as well as technology-related items.
Other nations hit with reciprocal duties have until early July to strike a deal, according to an announcement Trump made a week after the initial move.
White House officials insist that tariffs will not cause runaway inflation, with the expectation that foreign producers would absorb much of the costs themselves. Many economists, though, believe that the broad-based nature of the duties could raise prices in a more pronounced fashion, with greater impacts likely to show up through the summer as inventories amassed ahead of the tariff implementation draw down.
The benign May inflation readings suggest “the tariffs aren’t having a large immediate impact because companies have been using existing inventories or slowly adjusting prices due to uncertain demand,” said Alexandra Wilson-Elizondo, global CIO of multi-asset solutions at Goldman Sachs Asset Management. “While we might see some price increases on goods later, service prices are expected to remain stable, suggesting any rise in inflation is likely to be temporary.”
Market pricing indicates the Fed is unlikely to consider further interest rate cuts until at least September as policymakers evaluate the impact that tariffs expert on inflation. Trump has been urging the Fed to lower rates amid the easing inflation readings and signs of a slowdown in the labor market.

Changes in data collection

Evaluating the inflation numbers has been complicated by other Trump initiatives.
In an effort to pare down the federal workforce, the administration has instituted a hiring freeze that has coincided with the BLS restricting its data collection and expanding a process called imputation, in which it uses models to fill in incomplete data. For instance, the BLS said last week that as of April it has been “reducing sample in areas across the country” and suspended collection altogether in Lincoln, Neb.; Provo, Utah; and Buffalo, N.Y.
“The use of expanded imputation is likely to continue, given ongoing staffing shortages at the BLS. While it is difficult to conclude any kind of directional effect, smaller sample sizes may be liable to greater volatility,” BNP Paribas analysts said in a note.
However, the BLS said the moves to suspend collections will have “minimal impact” on overall data collection, though they could impact subindexes. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US and China have agreed to a framework that restores a truce in their trade war after two days of marathon negotiations in London.The breakthrough late on Tuesday followed an agreement in Geneva last month aimed at easing trade tensions between the world’s two economic superpowers, which had faltered over differences regarding Chinese rare earth exports and US export controls.US President Donald Trump said on Wednesday that “our deal with China is done”, adding that the agreement would lead to China supplying rare earths “up front”.As part of the deal, the US would meet its commitments, including “Chinese students using our colleges and universities”, Trump said in a post on Truth Social, but made no mention of export controls on chips.Trump’s comments come after the US negotiating team, which included commerce secretary Howard Lutnick and US trade representative Jamieson Greer, concluded two days of talks in the UK capital.Lutnick said late on Tuesday that he expected that “the topic of rare earth minerals and magnets . . . will be resolved in this framework”.He added that export restrictions applied by the US “when those rare earths were not coming” would also be lifted, “as President Trump said, in a balanced way”.A senior White House official indicated earlier in the week that Trump could ease restrictions on selling chips to China if Beijing agreed to speed up the export of rare earths. That would amount to a significant policy shift from former president Joe Biden’s administration, which implemented what it called a “small yard, high fence” approach to restrict Beijing’s ability to obtain US technology that could be used to help its military.Li Chenggang, China’s vice-minister of commerce, described the London talks as “rational, in-depth and candid”, and said the sides had agreed to implement the consensus reached in Geneva and in a phone call between Trump and Chinese President Xi Jinping last week, according to state news agency Xinhua.He expressed hope that the progress made in London “will be conducive to strengthening trust between China and the United States”.China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks closed up 0.8 per cent on Wednesday. Futures tracking the S&P 500 were down 0.2 per cent. Show video infoBoth countries agreed in Geneva last month to slash their respective tariffs by 115 percentage points and provided a 90-day window to resolve the trade war. But the ceasefire came under pressure after Washington accused Beijing of reneging on an agreement to speed up the export of rare earths, while China criticised new US export controls.The US team, which also included Treasury secretary Scott Bessent, had held two days of talks with the Chinese delegation, led by He Lifeng, a vice-premier responsible for the economy. The talks were held in the historic Lancaster House mansion in central London, a short walk from Buckingham Palace, which was provided by the British government as a neutral ground for the talks.Chinese vice-premier He Lifeng outside Lancaster House in London 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. On today’s agenda: The US and China have agreed a framework that restores a truce in their trade war after two days of negotiations. Here’s what you need to know.What have the US and China agreed? The two economic superpowers have agreed a framework that restores a truce in their trade war after two days of marathon negotiations in London. The breakthrough came late last night but few details of the new framework were shared. Li Chenggang, China’s vice-minister of commerce, said the sides had agreed to implement the consensus reached in Geneva, according to state news agency Xinhua. That included an agreement by both countries to slash their respective tariffs by 115 percentage points and provided a 90-day window to resolve the trade war.What happens now? The US negotiating team, including commerce secretary Howard Lutnick, Treasury secretary Scott Bessent and US trade representative Jamieson Greer, returned to Washington overnight to present the deal to President Donald Trump. The Chinese delegation, led by He Lifeng, a vice-premier responsible for the economy, returned to Beijing. The negotiations were launched to ensure Chinese exports of rare earths to the US and American technology export controls on China did not derail broader talks between the sides. Here’s the full readout from the talks.Emerging markets: Trump’s trade war will depress growth in almost two-thirds of developing economies this year, the World Bank has warned. Global economy: The tariff war brings with it unpredictability and a consequent loss of confidence, writes Martin Wolf.EU-China trade: Brussels has imposed anti-dumping duties on Chinese plywood imports, days after Beijing tried to ease trade tensions.Here’s what else we’re keeping tabs on today:US inflation: Figures released today are expected to show an acceleration in consumer price growth last month. Companies: Oracle is expected to report an increase in fourth-quarter revenue, helped by robust demand for its cloud services. Canada’s Dollarama reports first-quarter results.Economic data: Mexico’s national statistics agency is expected to report industrial output. Its central bank publishes its twice yearly financial stability report.Israel: Prime Minister Benjamin Netanyahu’s coalition is bracing for a crunch vote today in the Knesset. Here’s why. Five more top stories1. The mayor of Los Angeles has announced a curfew for the downtown area that has been at the centre of four days of protests marked by conflicts with police and vandalism. The move comes as Trump defended his decision to deploy hundreds of marines and vowed to “liberate” California’s largest city.The ‘enemy within’: Sending the National Guard into LA is the clearest step yet towards authoritarianism, writes Edward Luce.2. Elon Musk has said he “regrets” some of the posts he made about Donald Trump on his social media platform X last week, “they went too far”. Allies of the two have urged the US president and his billionaire backer to repair their relationship which imploded last week. Supporters fear the damaging spat could impact the administration’s plans for tax cuts and deregulation. Here’s more on Musk’s overnight comments.3. Private market funds have underperformed large-cap US stocks over commonly measured time horizons for the first time in nearly a quarter of a century. The data, which measures private funds based on actual cash flows and does not depend on voluntary reporting, comes after a number of years in which the global buyout industry has struggled to purchase and sell companies.4. Meta plans to invest about $15bn in data-labelling start-up Scale AI and hire the group’s co-founder and top researchers, in one of the biggest deals of its kind. The agreement would give Meta a 49 per cent stake and value the start-up at roughly $28bn, according to people with knowledge of the matter. The deal could be announced as soon as today.Snap’s ‘Specs’: The social media company plans to relaunch its smart glasses as it rejoins a costly battle over AI-powered wearable devices with Meta, OpenAI and Apple. 5. US oil production will fall next year for the first time since the Covid-19 pandemic, according to a government forecast. The report highlights the stresses facing the sector, with rising supply from the Opec+ cartel and anxiety over Trump’s trade war pushing down crude prices.Visual investigationIn March, Mexican authorities seized a 46,000-tonne vessel suspected of illegally importing fuel from the US. A subsequent raid on nearby storage facilities uncovered weapons, tanker trucks and 10mn litres of diesel. But this was no isolated case. The FT has uncovered dozens of suspicious shipments, with millions of barrels of fuel falsely declared as industrial lubricant. Our latest visual investigation explores how the sophisticated smuggling operations fund Mexico’s cartels.We’re also reading . . . CEO pay and perks: Executives may find the idea of disclosing less about their packages attractive, but this carries its own risks, writes Brooke Masters. WPP: Outgoing chief Mark Read pushed to adopt AI but, for an ad agency that still bills some clients by the hour, the disruption of its own business has unsettled investors. MathGPT: New AI models could soon pose a threat to the world’s top mathematicians, writes Anjana Ahuja. Chart of the day The world’s ocean temperatures reached the second-highest level on record for May, capping an “alarming” two-year streak of rapid warming, according to the EU’s earth observation service Copernicus. Oceans have historically helped absorb higher land temperatures but scientists say this expectation is increasingly being challenged. Read more on the growing number of “marine heatwaves”. Take a break from the newsWhen Nadya Tolokonnikova started “Police State”, a 10-day performance piece at the Museum of Contemporary Art in Los Angeles last week, she could not have known the city would soon be plunged into unrest. “They always pick the scapegoat,” the founding member of Pussy Riot tells the FT. “In Russia it’s people who speak out against the regime. In America and Los Angeles, it’s migrants.”Russian artist Nadya Tolokonnikova in a mock prison cell for her 10-day performance piece ‘Police State’ More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Gold has overtaken the euro as the world’s second most important reserve asset for central banks, driven by record purchases and soaring prices, according to the European Central Bank.Bullion accounted for 20 per cent of global official reserves last year, outstripping the euro’s 16 per cent and second only to the US dollar at 46 per cent, data from an ECB report published on Wednesday showed. “Central banks continued to accumulate gold at a record pace,” the ECB wrote, adding that central banks for the third year in a row acquired more than 1,000 tonnes of gold in 2024, a fifth of the total global annual production and twice the annual amount in the decade of the 2010s.The stock of gold held by central banks worldwide is approaching the historic highs of the postwar Bretton Woods era. Until 1971, global exchange rates were fixed to the US dollar, which in turn could be converted into gold at a fixed exchange rate.Central bank gold reserves, which peaked at 38,000 tonnes in the mid-1960s, rose again to reach 36,000 tonnes in 2024, according to the latest ECB numbers. “Central banks worldwide now hold almost as much gold as they did in 1965,” the ECB report said.Large buyers last year included India, China, Turkey and Poland, according to the World Gold Council.A 30 per cent rise in the gold price last year was one factor behind the surge in gold’s share of global foreign reserves. Since the start of the year, the gold price has surged by another 27 per cent, hitting a historic high of $3,500 per troy ounce. “This stockpile, together with high prices, made gold the second-largest global reserve asset at market prices in 2024 — after the US dollar,” the ECB said. While gold does not bear interest and is costly to store, it is seen by investors globally as the ultimate safe asset that is highly liquid, and neither exposed to counterparty risk nor sanctions. In recent years, central banks have also been trying to diversify away from the US dollar amid concerns about geopolitical instability and US debt levels. The de-dollarisation trend accelerated, particularly among developing countries, after the Russian invasion of Ukraine, when the US targeted Russia’s access to financial markets.“Gold demand for monetary reserves surged sharply in the wake of Russia’s full-scale invasion of Ukraine in 2022 and has remained high,” the ECB report said, adding that gold purchases appeared to be seen as a hedge against sanctions such as the freezing of financial assets.“In five of the 10 largest annual increases in the share of gold in foreign reserves since 1999, the countries involved faced sanctions in the same year or the previous year,” the central bank’s analysis showed, adding that “countries that are geopolitically close to China and Russia” bulked up on gold more than others over the past three years. A survey among 57 central banks that were holding gold last year also revealed that concerns about sanctions, expected changes in the global monetary system and the desire to become less dependent on the US dollar were drivers in emerging markets and developing countries.Moreover, while gold historically became cheaper when real yields of other assets rose, this long-standing correlation has broken down since early 2022, with investors drawn to gold as a hedge against political risk more than as a hedge against inflation. The ECB noted that the supply of gold in recent decades increased during times of high prices: “If history is any guide, further increases in the official demand for gold reserves may also support further growth in global gold supply.”Data visualisation by Keith FrayVideo: Why governments are ‘addicted’ to debt | FT Film More

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