Economy

Markets have priced in a quarter-point rate cut from the European Central Bank on Thursday and another half-point in cuts by the end of the year.
However, with the hotly-debated “neutral level” in view and a host of economic and geopolitical uncertainties, disagreement among policymakers may increase from here.

The European Central Bank is expected to cut interest rates for the second time this year at its Thursday meeting, but disagreement among policymakers may be set to increase amid tariff uncertainty and a potential ramp-up in regional defense spending.
Markets had on Wednesday fully priced in a quarter-point rate cut for the March meeting, taking the ECB’s key rate to 2.5% — down from its peak of 4% in the middle of last year. A further reduction to 2% by the end of the year was also priced in.

A relatively swift pace of monetary easing has been expected over the last nine months, with euro zone headline inflation coming in consistently below 3%, and economic growth remaining weak. The ECB’s Governing Council has almost always made its decisions unanimously and provided relatively firm guidance of its next steps to guide market expectations.
However, the central bank now appears within touching distance of the hotly-debated “neutral rate” at which policy is neither stimulating nor restricting the economy, when rates would be expected to be kept on hold. Policymakers disagree on exactly where this level is, and whether rates might need to be brought even lower than that level in response to factors such as low growth.
ECB President Christine Lagarde told CNBC in January she believed the range was between 1.75% and 2.25%, down from her previous estimate of between 1.75% and 2.5% — but the ECB itself has not issued a firmer indication since.
Bank of America Global Research analysts said in a Wednesday note that following this week’s meeting they expected increased internal dispute between policymakers.
“This is the last ‘easy’ rate cut in our views, as disagreements grow,” they said. However, they reiterated a view ahead of market expectations for the ECB to slash rates to 1.5% by September.

“The debate among ECB policymakers has picked up over recent weeks,” noted Goldman Sachs analysts, who said they expected the voting Governing Council to focus on whether broad financial conditions, bank lending conditions, business reports and lending indicate rates are still restrictive.

Spending hike

The outlook is meanwhile clouded by a host of factors causing a stir in markets and the economy. The ECB staff macroeconomic projections on inflation and growth that will be released Thursday will therefore be closely-watched, but may be taken with a pinch of salt.
The U.S. has launched tariffs on its biggest trading partners which are expected to cause a slowdown in global sectors including automotives — but the duties might yet be pared back. U.S. President Donald Trump has said the European Union will be next in-line for high duties — however, the prospect of a negotiation also remains in play. The impact of such tariffs would also be uncertain, with a slowdown in trade dragging on economic activity, but also potentially weighing on the euro, raising the cost of imports.
European governments are meanwhile gearing up to hike spending on defense as relations with the U.S. over the Ukraine war fracture.
Lagarde is likely to be questioned on the potential impact of the deal announced this week in Germany between the country’s expected next coalition partners. An agreement on reforming German debt rules has not yet been finalized, but is expected to unlock up to a trillion euros in spending on defense and infrastructure, with the euro sharply rallying on the news Wednesday.

Analysts at Rabobank said euro gains were “in part due to expectations that room for further ECB rates cuts will be more confined,” with the reforms and higher spending bringing the “promise of an uplift in economic growth.”
A broader move toward European rearmament would represent “a debt-financed fiscal expansion that would spur economic activity, allow some reflation, and cause the ECB to reconsider the extent of its policy rate cuts going forward,” Thierry Wizman, global FX and rates strategist at Macquarie, said Tuesday.

Still restrictive?

Despite all of this uncertainty, some analysts do not expect the ECB to significantly update its guidance on Thursday, which in January stressed that inflation was expected to converge toward target, monetary policy remains restrictive, and that the central bank will continue its data-dependent approach.
A particular focus will be on whether it alters the message that policy is “restrictive,” and whether there is a suggestion that a rate hold may be coming at the next meeting in April.
“Given the unusual uncertainty created by the ongoing political and geopolitical developments, we expect the Governing Council of the ECB to be driven this week by a desire to maximise optionality about subsequent moves,” Citi analysts said Wednesday.
“We think this may translate into a more cautious communication, no longer asserting that monetary policy is restrictive. We would not read this as a sign that a pause in the easing process is forthcoming, however. Shifting geopolitics may eventually generate reflationary fiscal policies, but in the near term, they will likely increase the argument for monetary easing.” 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. We start with the longest State of the Union address of modern times and here are the other stories we are covering this morning:China’s new growth targetGermany’s historic commitment to increase defence spendingAn alternative plan for Gaza And why Ghanaian farmers are ditching cocoa for goldDonald Trump admitted tariffs would cause “a little disturbance” for the US economy as he boasted about the achievements of his administration after its first six weeks in office in the longest annual address to the joint houses of Congress of modern times.The US president promised to balance the federal budget while insisting he would press ahead with tax cuts and thanked Elon Musk for slashing government costs in a deeply partisan 99-minute speech that took a swipe at his predecessor Joe Biden for his “horrible” Chips Act and the soaring price of eggs. But he was more conciliatory when it came to Ukraine, thanking President Volodymyr Zelenskyy for an “important letter” indicating that he was ready to negotiate a peace deal with Russia and sign a pact giving the US access to critical Ukrainian minerals. We are “just getting started” Trump declared as he touted a list of domestic and international achievements. “We have accomplished more in 43 days than most administrations accomplish in four years or eight years,” he said.His speech was met with heckles from some Democrats, including Al Green from Texas who was removed. Others held up signs displaying messages like “that’s a lie” and “false” while Republicans cheered continuously in the divided chamber. Here’s more coverage of the address.Highlights: The key moments of the marathon address to Congress.Instant Insight: The speech was neither libertarian nor traditionally conservative, or even conventionally nationalist, writes Edward Luce. It was pure Trumpian personalism.Here’s what else we’re keeping tabs on today:Economic data: The monthly employment report from ADP, the payroll company, will be closely watched ahead of Friday’s data from the government. The Institute for Supply Management releases its non-manufacturing PMI index for February.Results: Campbell’s releases second-quarter revenues while Abercrombie & Fitch is expected to report fourth-quarter results. Jack Daniel’s parent, Brown-Forman, reports on its third-quarter performance.Five more top stories1. German borrowing costs have surged today after chancellor-in-waiting Friedrich Merz agreed a historic deal with his probable coalition partners that would relax the country’s strict “debt brake” to fund investment in the military and infrastructure. The yield on the 10-year Bund rose 0.18 percentage points to 2.66 per cent, its biggest one-day move since 2020. Read more on Merz’s historic announcement. 2. China has announced an ambitious 2025 growth target of “around 5 per cent” despite a slowdown in the domestic economy and trade tensions with the US. Delivering the new target, Premier Li Qiang also said borrowing would have to rise to stimulate the economy and inflation would fall. Here’s more on Qiang’s address to the National People’s Congress.3. Arab leaders have adopted a plan for the postwar administration and reconstruction of Gaza in a bid to provide an alternative to Trump’s proposal for the war-shattered enclave to be emptied of Palestinians and taken over by the US. Egypt has been leading efforts to devise an alternative that ensures Hamas is no longer in power in Gaza. This is what we know about the plan so far. 4. BlackRock has agreed to buy two major ports on the Panama Canal from their Hong Kong-based owner as part of a $22.8bn deal, following pressure from Donald Trump over alleged Chinese influence at the vital waterway. The deal, announced yesterday, also includes an 80 per cent stake of CK Hutchison’s ports subsidiaries, which run 43 ports in 23 countries. Here’s how the agreement will work. 5. Deloitte has told staff in its US tax practice that it will now consider office attendance figures as part of their performance reviews, according to an email seen by the Financial Times. Performance reviews are used by the Big Four firm to help determine bonuses. Read more of the email which was sent by Katie Zinn, the tax practice’s chief talent officer.The Big Read© FT montage/Getty/BloombergTwo of the biggest names in global macro trad­ing, Alan Howard and Chris Rokos, embody different approaches to a perennial issue of hedge funds with a talented individual at their centre: how to create a sustainable business without their star trader founders.We’re also reading . . . Chart of the dayGhana’s cocoa farmers are abandoning beans for bullion in an illegal gold mining boom known as “galamsey”. Ghana is the world’s second-largest cocoa producer and a shortage of the commodity has helped drive global chocolate prices to historic highs. Aanu Adeoye reports from Ghana’s eastern region of Atiwa West on the plight of farmers forced to give up their land. Take a break from the news . . . A company aiming to revive extinct animal species has unveiled genetically engineered “woolly mice” that it says are an important milestone in its quest to bring back mammoths. Three of the shaggy rodents genetically engineered by US-based Colossal Biosciences More

Nat Dyer is an author.In December 1703, following a stunning English and Dutch naval victory over the French fleet, a well-connected and cunning English diplomat, John Methuen, convinced the King of Portugal to sign a trade deal. It eliminated tariffs for English woollen cloth entering Portugal and gave Portuguese wine preferential treatment in England. In the decades that followed, trade boomed between the two countries in both commodities.This exchange of English cloth and Portuguese wine would become the stuff of legend.The cloth and wine example was used by the stockbroker-turned-economist David Ricardo in 1817 to explain why freer international trade benefited all countries, as long as they specialise in what they make most efficiently. Ricardo’s principle of comparative advantage has been praised by generations of Nobel winning economists as one of the profession’s greatest insights. Paul Samuelson called it a “beautiful” and the “unshakeable” basis for international trade. Paul Krugman, while shaping the pro-globalisation consensus in the 1990s, wrote that Ricardo’s idea was: “utterly true, immensely sophisticated — and extremely relevant to the modern world.”Ricardo has come in useful again and again. When, White House economist Greg Mankiw got in political hot water in 2004 for saying that offshoring American jobs was “probably a plus for the economy in the long run” he lent on the 200-year-old theory. As The New Yorker explained, economists still rely on Ricardo’s “extremely powerful” insight: the story of “England exchanging its surplus cloth for Portugal’s surplus wine, to the benefit of consumers in both places.” If only the public and politicians could grasp the counter-intuitive logic of Ricardo’s “difficult” idea, Krugman had suggested, then opposition to free trade would disappear. The problem, Mankiw wrote, was that the public were “worse than ignorant” about good trade policy. Now, with Trump’s will-he-won’t-he trade wars and tariff brinkmanship, similar voices have been heard again. What we need in the age of Trump, economist Justin Wolfers, wrote recently — betraying a quasi-religious devotion — is “a sermon about Ricardian comparative advantage and gains from trade.”Yet, curiously, too few economic theorists have interrogated the actual, messy history of trade. Gold, cloth and chainsAll major economic powers — Britain, Germany, and yes the USA, and China — rose to their position while protecting their industries with high tariffs. Even a quick look at economists’ favourite example of win-win trade between England and Portugal reveals a radically different picture.As I describe in my book Ricardo’s Dream, the classic English and Portuguese exchange was about politics and power, not just economics. The naval victory, at the Battle of Vigo Bay in 1702, was so important because the ailing Portuguese Empire was caught in a geopolitical bind between the rising northern powers of England and France. John Methuen signed two military treaties with the Portuguese before he sealed the commercial deal. With the Cloth and Wine Treaty, Portugal bought not just products but protection. The deal helped ruin Portugal’s own textile manufacturing, as Methuen predicted, and even its increased port exports left a huge trade deficit with England decade after decade. The trade between the two countries was balanced with a commodity almost never mentioned by trade theorists: gold from Brazil.The Portuguese had struck gold in its South American colony in the 1690s. The Brazilian Gold Rush lasted most of the 18th century and doubled world production. More than half of this gold ended up in London (enriching, among others, Sir Isaac Newton). The gold flows were no secret. Even Adam Smith, Ricardo’s fellow classical economist, wrote: “Almost all of our gold, it is said, comes from Portugal” or more accurately from “the Brazils”. And, yet, the connections are rarely made. One more product, excluded from the conventional story, comes into view when we look at how the gold was mined. It is a product no longer legally traded: human beings. Brazil’s gold rush relied on huge numbers of enslaved Africans, transported in chains across the Atlantic. Brazilian gold supercharged the transatlantic slave trade and, as contemporaries observed, turned the West African Gold Coast into a “slave coast”. That’s not all. Much of the English cloth — in some years around 85 per cent — that landed in Portuguese ports was re-exported to Africa to be exchanged for captive men, women, and children. In the global historical view, the trade in English cloth and Portugal wine appears to be an appendix, and facilitator, of the transatlantic triangular trade.But, Ricardo’s famous model excluded questions of power, empire, and exploitation from the beginning. As Matthew Watson, professor of political economy at Warwick University, has written, Ricardo’s theory is “a mathematical facade behind which the actual historical social relations of production of the real England and Portugal are deliberately taken out of the equation”. These are “explicitly oppressive social relations of production based on slave labour and the imperial policing of national hierarchies”. Those who hold on to the old story of English cloth and Portuguese wine have the wool pulled over their eyes. Of course, other episodes of international trade paint a much rosier picture: of how trade has expanded peoples’ worlds, their access to products, and the flow of news and culture. Yet, the English and Portuguese history does fit into a pattern of so-called unequal treaties that Britain imposed on nominally independent states — such as Siam (Thailand), China and Persia — in the 19th century. The political economist Ha-Joon Chang has written that this first period of economic globalisation was “‘made possible, in large part, by military might, rather than market forces”.The backlashIn the 1980s, fears of the rise of a new protectionism pushed policymakers to create a vast web of bilateral, regional, and global trade agreements. Political parties whether on the right or left embraced a very specific type of globalisation, which was sometimes seen as a universal law akin to gravity. “Free trade” became a dogma that was used, in part, to tilt the global trading system in favour of large multinational corporations and Wall Street, giving them new rights and powers and plumping their profits. CEO pay skyrocketed while regular, working people often lost out, for example, the millions of Americans who lost their livelihoods with the China Shock — after China joined the WTO in 2001 and flooded the US with cheap products. All the while, economists touted the benefits of trade as long as their models showed that the winners could theoretically compensate the losers, regardless of whether it happened or not. Another aspect excluded from economists’ models was global power competition, making them increasingly less relevant to a political class fixated on a resurgent China. Fuelled in part by the backlash to globalisation, Donald Trump won the White House and is now back for a second time. He has made good on his promise to turn away from free trade surrounding himself with advisors such as, Peter Navarro, who has argued that: “Ricardo is dead!” Navarro, of course, is not worried about how the West exploited the wealth of its formal and informal colonies but how in the 21st century the USA has, in his eyes, been unfairly taken advantage of by China’s state capitalism. America’s turn to tariffs is a recognition of its fragility, not strength. Progressives will disagree with many of his solutions, but Navarro is surely right that “the economics profession must do a much better job than David Ricardo of modelling trade in the real world.” Now, Trump is speaking loudly and hitting allies and enemies alike with a big stick labelled ‘tariffs’. He has mobilised a real, justified complaint against hyperglobalisation to promote a highly divisive and potentially damaging policy. Along the way, he has made the power and politics of trade policy, so often concealed or denied, plain for all to see. The constitutional wrecking ball of Trump’s first few weeks of his second term have rightly outraged many. But on the issue of tariffs, a desire to return to the ”old Ricardian verities” and argue that they are always and everywhere bad is a road to nowhere. Trying to counter Trump with ‘fairy tale’ economic theories that helped fuel his rise is like trying to put out a house fire with matches. Opposition to Trump’s harmful and damaging policies requires a more solid footing. We need a new, genuinely progressive economics with its eyes focused on the real world and its history, rather than abstract models built on unreality. This has begun to emerge in the past decade. There is a growing acceptance that whether tariffs are good or bad depends on context, that there is a difference between targeted and across-the-board tariffs, and that new forms of protectionism could reduce inequality or ecological destruction. Much turns on whether economics can continue to evolve into a field of study that is, to borrow a line, genuinely true, sophisticated, and relevant to the modern world.@natjdyer.bsky.social 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. Yesterday was a wild ride in the stock and bond markets, with shares forming a reverse N shape (down, up, down again) through the day and Treasury yields forming a reverse hockey stick (flat, then sharply up). Remember your Mandelbrot: over any given timeframe, markets have momentum and follow a trend, but in the transition periods between trends, they bounce around quite randomly. This feels like one of those indeterminate transition periods. So when does the bouncing end, and the next trend take hold? Email us: robert.armstrong@ft.com and aiden.reiter@ft.com.This is a growth scare first and a tariff scare secondMarkets are volatile and uneasy, and it is easy to attribute this to the US tariffs just imposed on Canada, Mexico, and China. But what we are seeing in markets is more consistent with a general growth scare than a tariff-specific sell-off. And this makes sense: the tariffs were an unpleasant surprise that followed and added to, rather than caused, a bundle of bad signals from the economy and markets.That was certainly true of Monday’s equity sell-off which, as we detailed yesterday, looked like a classic risk-off day, with defensives rising and cyclicals falling. And it was certainly true during Tuesday’s rollercoaster. The biggest losers on the day were US banks, with the BKW bank index falling 4.5 per cent. Why banks? Because most US banks’ lending businesses are leveraged to domestic growth, and their margins will be diminished by the lower interest rates that slower growth will bring in its train. And the market does see rates coming down: the futures market has added almost two full rate cuts to its expectations for 2025 in the past month.More evidence that growth rather that tariffs is primarily in play: the dollar has been falling for more than a month, and fell sharply yesterday.If there is one reliable consensus about tariffs among their fans and foes, it is that they are dollar-positive (tariffs reduce demand for imports and therefore the foreign currencies needed to buy those goods). So what is driving the greenback down now? Again, lower growth expectations; they drive down interest rates (in particular real rates), lowering the differential with rates in Europe and elsewhere. The currencies adjust accordingly. Signs of expansionary fiscal policy in Germany reinforce this effect; the fact that a few weeks ago every trader and his dog were long the dollar does, too. One might wonder, in addition, whether financial flows are weakening the dollar as well, as US risk assets no longer look like a one-way bet. The fund flows data over the next few weeks will be interesting in this respect.The growth and tariff effects are not mutually exclusive. Tariffs, in the short term, are growth negative. But right now there is much more going on than that.Investor sentiment, the wall of worry, and valuationsThe standard measure of retail investor sentiment, the AAII Survey, has undergone a remarkable crash over the past month. The latest reading of its bull-bear spread (the percentage of respondents feeling bullish about markets over the next six months, minus the percentage feeling bearish), from the last week in February, hit -41, a low only equalled twice in the past 20 years. See the light blue line here:Some content could not load. Check your internet connection or browser settings.On the standard reading, this is a bullish sign — “be greedy when others are scared” as they say, or “stocks climb a wall of worry”. Indeed, for a long-term investor, the previous deep lows in the survey, in 2009 and 2022, were excellent times to buy stocks.That might be the case this time, too. But there is something to keep in mind. Stocks are currently only 10 per cent off their all-time highs last month. But at the previous lows in sentiment, equity prices had already fallen much harder. Stocks, in other words, look like they might have a ways to go before catching up (down?) with sentiment, should sentiment stay so depressed.Another way to make the same point is with valuations. At the previous lows in the bull-bear spread, price/earnings valuations had hit lows (see the dark blue line above). And while valuations have dropped recently, they are still very high by historical standards.Doge, growth and the labour marketIt is hard to analyse the economic impact of the Department of Government Efficiency (Doge), Elon Musk’s effort to shrink the federal government. Like all things with him and Trump, it’s messy. Its accomplishments have been overstated, and nearly all of its actions are under legal review and could be reversed.Doge could, in theory, severely slash government spending, with a negative flow through to GDP. But there are many who would argue that less government spending would be offset by a surge in investment and a private sector unburdened by oversight. At the same time, Congress would probably oppose any significant cuts to spending.The larger and more pressing risks are to the labour market. The government employs 3mn civilian workers, and even more government contractors (estimates vary, but a decent rule of thumb is 2:1, according to Torsten Slok at Apollo). The federal government started to grow at a faster rate in 2023:Over the past 18 months, the government has added roughly 3,000 federal employees each month — a big step up by its own standards, but a small change compared to the average of 186,000 jobs added per month last year. According to Skanda Amarnath at Employ America, the federal government has never been a major driver of employment growth, but it has been a drag:During past examples [of government downsizing], like the budget sequestration in the early 2010s, the federal government was a drag on hiring, about -4,000 to -10,000 a month. We might see a net reduction of something like 13,000 off of payroll growth, in the worst-case scenario.Last month, the US economy added 143,000 jobs — far below what many predict is our current break-even. A steady-to-fast reduction in government employees at a similar scale to the early 2010s would weaken an already softening labour market. And Doge-led reductions in federal employees is likely to go hand-in-hand with cuts in other sectors that receive federal money: state and local governments, non-profits and higher education, and professional services (where contractors generally sit).A flood of government lay-offs would not necessarily trigger a recession, however. In general, an uptick in the three-month moving average of national unemployment of 0.5 per cent precedes a recession, or so says the Sahm rule, an indicator widely used by policymakers. Doge would have to increase the unemployed population by more than 1mn to trigger the rule, according toClaudia Sahm at New Century Advisors, who came up with it. Most of the estimates Unhedged has seen suggest that Doge could lay off a maximum of 800,000 to 1mn federal employees and contractors. But even if there is not a recession, Doge’s job cuts could cause pain in communities where the government is one of, if not the, main employer: areas around army bases and the DC-suburbs, for example. And a weakening job market could put the Federal Reserve in a tough spot. Inflation is not dead, and the economy is weakening. If today’s new tariffs and whatever retaliation they invite causes prices to go up, the Fed needs to feel good about the job market to keep rates where they are or raise them further. If Doge makes the employment picture look significantly worse, the central bank could be caught between its two mandates, and the market might realise its worst fear: stagflation.(Reiter)One Good ReadRoyal shade.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

Show video infoDonald Trump has warned that tariffs on the US’s biggest trading partners will cause “a little disturbance”, as he vowed to push ahead with his sharply divisive domestic agenda in a combative speech to Congress.In the first major policy speech of his second term, the president doubled down on his decision to impose 25 per cent tariffs on Canada and Mexico, and an additional 10 per cent levy on China.“Tariffs are about making America rich again, and making America great again,” he said. “It’s happening, and it will happen rather quickly.” Trump’s address comes amid mounting evidence that businesses and consumers are concerned about the effect of tariffs, which are likely to disrupt supply chains and send the costs of some goods higher.Wall Street stocks have wiped out all of their post-election gains as hopes that Trump’s policies would drive stronger growth have turned to worries about the trajectory for the world’s biggest economy. “There will be a little disturbance, but we’re OK with that,” Trump said. Trump also insisted that so-called reciprocal tariffs on goods from a wide range of countries would be imposed on April 2.The more than 90-minute speech, delivered to a palpably divided chamber in which several Democrats held signs of protest, caps a dramatic six weeks in which Trump has unleashed an aggressive agenda to reshape US trade and foreign policy and impose sweeping changes across the government.To raucous applause from Republicans, Trump declared: “America’s momentum is back. Our spirit is back. Our pride is back, our confidence is back. And the American dream is surging, bigger and better than ever before.”Trump used the speech to underscore his muscular approach to foreign policy, insisting he would “get” Greenland, the Arctic island that is part of Denmark and which he has repeatedly said he wants to take over, “one way or another”.New Mexico’s Democratic representative Melanie Stansbury holds a sign reading ‘This is not normal’ as Trump arrives to address Congress More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldBlackRock has agreed to buy two major ports on the Panama Canal from their Hong Kong-based owner as part of a $22.8bn deal, following pressure from Donald Trump over alleged Chinese influence at the vital waterway.Under the agreement, the ports’ Hong Kong-based owner CK Hutchison would sell the business to a consortium including BlackRock, Global Infrastructure Partners and Terminal Investment Limited, according to a company statement on Tuesday. The group would acquire a 90 per cent stake in the company that owns and operates the two ports in Panama.Trump has frequently alleged that “China is running the Panama Canal”, and rattled Panama when he threatened earlier this year to “take it back” under American control. The Trump administration has also demanded Panama reduce Chinese influence at the canal, claiming Beijing’s involvement in the ports had violated a treaty concerning its neutrality.The deal announced on Tuesday also includes an 80 per cent stake of CK Hutchison’s ports subsidiaries, which run 43 ports in 23 countries, including in the UK and Germany. It also runs ports in south-east Asia, the Middle East, Mexico and Australia.The remaining 20 per cent stake is held by port operator PSA, which is owned by Temasek, the Singapore sovereign wealth fund. CK Hutchison said it expected to receive cash in excess of $19bn from the deal, a figure that includes repayment of some shareholder loans. CK Hutchison’s market capitalisation is HK$148bn ($19bn). The group’s share price surged 22 per cent in morning trading in Hong Kong on Wednesday.Trump’s election victory in November and his calls for the US to retake control of the canal prompted CK Hutchison to consider the sale, sparking a short and intense period of negotiations for the ports, according to people briefed on the discussions.“When President Trump won and he started making noise about annexing Canada and Greenland and Panama, the pressure was put on the Panamanians,” one person familiar with the deal said. The person added that CK Hutchison “realised that it was a political headache and they wanted to do something”.To navigate the potential political fallout, BlackRock chief executive Larry Fink briefed senior leaders in the Trump administration, including the president, to secure their backing for the takeover, two people briefed on the matter said. One of the people added that the consortium would not have gone forward with its bid if they believed the US government would not support the deal.Controlled by Hong Kong’s richest man Li Ka-shing and his family, CK Hutchison has a portfolio of ports, retail, telecoms and other infrastructure. Ports operations made up about 9 per cent of CK Hutchison’s total revenue of HK$461.6bn in 2023.The canal has become a flashpoint in Trump’s first weeks back in office, as he looks to expand the US’s borders and take control of infrastructure assets — disrupting allies and countries that had profited from decades of growing free trade.The deal with BlackRock comes after the asset manager’s acquisition of GIP, which helped make it a force in infrastructure investing. The strategically important waterway is run by the Panama Canal Authority, an arm of Panama’s government. It was built by American engineers and run by the US from its opening in 1914 until a treaty in 1977 agreed a staged handover to Panama, which was completed in 1999.Hutchison Ports, one of the world’s biggest operators of container terminals, has managed the ports at either end of the canal since 1997 under concessions from Panama’s government. The facilities have often attracted political comment from US politicians who have alleged that CK Hutchison’s role means China in effect controls the canal. The facilities mainly operate as “trans-shipment” ports where containers are moved between ships transiting the canal and smaller “feeder” ships shuttling to destinations around the Caribbean and the Pacific coast of South and Central America.CK Hutchison arranged a new concession in 2021 to keep operating the ports for another 25 years.Additional reporting by Robert Wright in London More