Economy

When Donald Trump rang the opening bell at the New York Stock Exchange on December 12, the chants of “USA” from the trading floor epitomised the investor exuberance that had greeted the president-elect’s victory and powered US stocks to a series of record highs.But just a few months later, investors betting that the new president’s America First agenda would boost US equities and the dollar, while hitting the currencies and stocks of its trading partners, have been confounded. Investors now worry that his much-vaunted policy of trade tariffs will hurt domestic growth. Meanwhile, the US’s foreign policy has galvanised Europe’s politicians into promising a defence spending boom that has lifted the region’s assets. “You’d be hard pressed to find another period where the disparate trends across the Atlantic have switched gears like this so profoundly,” said Robert Tipp, head of global bonds at PGIM Fixed Income.The US had hit a “saturation point” where headlines on tariffs and lay-offs had created a “budding economic pessimism” that had sent investors rushing for haven assets, he added. “Right at that moment, Europe has switched to stimulus.”Donald Trump rings the opening bell on the trading floor of the New York Stock Exchange in December More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Show video infoThe European Central Bank has signalled a possible slowdown in cuts to borrowing costs, as rate-setters reduced their benchmark interest rate by a quarter point to 2.5 per cent. Thursday’s widely expected move was the sixth reduction in the ECB’s deposit rate since the central bank started its rate-cutting cycle last June, when the benchmark stood at a record high of 4 per cent to counter surging inflation. In a change of tone that signalled a more hawkish stance, the ECB said that “monetary policy is becoming meaningfully less restrictive”.The language suggested a possible slowdown or pause in future interest rate cuts, since it compared with the ECB’s previous wording that “monetary policy remains restrictive”. Christine Lagarde, ECB president, said the shift in wording was “not an innocuous little change”. Lagarde raised the prospect of pausing the ECB’s run of rate cuts, saying rate-setters would be led by what “the data indicates”.Lagarde also said there was no opposition to the decision to cut rates — though one rate-setter, Austria’s hawkish central bank governor Robert Holzmann, abstained. In the aftermath of the decision, traders trimmed their bets on future rate reductions. While they continued to fully price in one further quarter-point cut this year, according to levels implied by swaps markets, the chance of a second cut in 2025 fell from about 85 per cent to roughly 70 per cent by late afternoon.The euro rose against the dollar after the ECB decision, before later giving up some of the gains, up 0.1 per cent at $1.080. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said the ECB was “no longer on autopilot” and had made a “meaningful, albeit conditional, hawkish shift”.Some content could not load. Check your internet connection or browser settings.Inflation has fallen from a peak of 10.6 per cent in October 2022 to 2.4 per cent in February and the deposit rate is now at its lowest since February 2023.The prospects for the Eurozone economy could also be affected by moves by Friedrich Merz, Germany’s chancellor-in-waiting, to unleash hundreds of billions of euros in borrowing to boost defence spending and overhaul his country’s infrastructure.Merz’s fiscal bazooka had prompted traders to reduce their expectations for ECB rate cuts even before Thursday’s decision. Some analysts forecast that a quick implementation of the plans could double Germany’s expected growth next year to 2 per cent.In projections that did not take into account the German plan, the ECB cut its growth forecast for 2025 — its sixth successive downgrade for the year — as well as for 2026 and 2027.It now expects Euro area GDP to increase by only 0.9 per cent this year, compared with its December projection of 1.1 per cent. “High uncertainty, both at home and abroad, is holding back investment and competitiveness challenges are weighing on exports,” Lagarde said on Thursday afternoon, adding that rate-setters were facing an acutely uncertain environment. Growth last year was a sluggish 0.7 per cent.But Lagarde added that “an increase in defence and infrastructure spending could also add to growth” and “could also raise inflation through its effects on aggregate demand”.Ahead of the ECB decision, Goldman Sachs economists wrote in a note to clients that Germany’s debt-funded push for much higher defence spending and infrastructure investment “clearly lowers the pressure” for the ECB to cut interest rates below 2 per cent.The ECB also raised its forecast for inflation this year from its December estimate of 2.1 per cent to 2.3 per cent on the back of higher energy prices.It added that “most measures of underlying inflation” suggested that it remained on track to meet its 2 per cent target.Pooja Kumra, a rates strategist at TD Securities, said the ECB was “certainly more cautious” on future cuts, as she alluded to US President Donald Trump’s threatened tariffs on the EU.“With uncertainty around fiscal [policy] and tariffs, they cannot commit to any path,” she said.“We think if inflation and growth data come in line with expectations over the coming months, the ECB is likely to cut one more time to 2.25 per cent in April, before pausing in June when the fiscal and tariff impact becomes clearer,” said Neil Mehta, portfolio manager at RBC BlueBay Asset Management. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The euro has a “clear path” to bolster its position as a global reserve currency to rival the US dollar and must take advantage of the huge opportunities it now faces, according to the president of the Eurogroup.Paschal Donohoe, who is Ireland’s finance minister as well as chief of the group of Eurozone finance ministers, said on Thursday there was a “heightened level of urgency” behind efforts to expand EU capital markets and adopt a digital euro.“I believe that offers a clear path to strengthening the role of the euro on the global currency stage,” he told an EY summit for chief financial officers in Dublin, held in partnership with the Financial Times.Donohoe’s comments come at a time of increased speculation over whether US President Donald Trump’s protectionist economic policies could affect the dollar’s central role in the global financial system.Trump’s apparent retreat from transatlantic alliances has also spurred European leaders to borrow more to fund increased military spending. Germany on Wednesday announced a historic €500bn debt deal to fund investment in defence and infrastructure. The relative scarcity of German government bonds — the eurozone’s de facto haven — has in the past been seen as a barrier to wider adoption of the euro in central bank reserves around the globe.The European single currency makes up 20 per cent of global reserves, roughly the same level as five years ago, according to the most recent IMF data. The dollar’s share has slipped to 57 per cent from 61 per cent over that time.George Saravelos, at Deutsche Bank, said this week that Trump’s imposition of tariffs on trading partners had unexpectedly piled pressure on the dollar — something that partly reflected “the potential loss of the dollar’s safe-haven status”. “We do not write this lightly, but the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility,” Saravelos wrote.Global investors have long questioned the ability of other currencies, including the euro, to rival the dollar’s long-standing role as the primary reserve asset, not least because of the vast $28tn scale of the US Treasury market, which dwarfs the €1.8tn market for German government bonds.“Until you have a credible alternative [to the dollar], what can you do?” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “You need vast pools of deep liquid capital markets” to be seen as a haven region, “and at the current point in time, the crown sits with the US”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the author of ‘Chip War’“I’m a little bit nervous,” admitted CC Wei, the CEO of Taiwanese chipmaker TSMC, taking the podium at the White House this week as he announced the largest foreign investment in American history. The entire chip industry has been nervous while watching President Donald Trump’s tariff escalation. Trump has threatened retaliation against Taiwan for having “stolen” US business. Yet TSMC is doubling down on its US manufacturing footprint with a new $100bn commitment.What exactly is TSMC planning to build? In addition to the chip plants — called fabs — already on their Arizona campus, TSMC will add three more. The company will also build two advanced packaging plants and an R&D facility. The timeline, capacity, and technology capabilities of these plants is not clear, but TSMC says they will produce AI chips. Even if the new plants have a similar volume to TSMC’s current facility, the US operations would still be a small share of the company’s overall production, though a higher share of its advanced manufacturing.This investment cements America’s position as a significant player in advanced chipmaking, behind only Taiwan and South Korea. TSMC’s customers — mostly big US chip designers like Nvidia, Apple, and AMD — will welcome the further geographic diversification of its manufacturing operations. Yet they will also ask about the cost. TSMC has learnt efficiencies during its time in the US, but its manufacturing there is still more expensive than in Taiwan. Both TSMC and its customers may now avoid tariffs, but they will find themselves with higher manufacturing costs instead.Still this announcement poses tough questions for Samsung and Intel, the two other primary manufacturers of advanced processors, who have pitched themselves as reliable suppliers with less exposure to China-related risk. As TSMC’s US footprint grows, this argument gets harder to make. Has this investment addressed America’s fears of being cut off from Taiwan’s chipmaking capabilities? Standing alongside Wei, Trump noted pointedly that TSMC’s new plants would be built in a “very safe place”. Yet even $100bn only goes so far in the capital intensive semiconductor supply chain. Products like smartphones and consumer electronics will probably remain entrenched in Taiwan and China.For AI chips, however, the new investment may represent a more significant shift. TSMC has reportedly been discussing manufacturing Nvidia’s advanced Blackwell AI chips in Arizona. If the company’s new facilities include its advanced packaging technology, then AI accelerators could be fully produced in the US. Other Taiwanese firms such as Foxconn are also planning new US plants to assemble these AI chips into servers, though some key inputs would still be sourced from Japan or Korea. After these new investments, the US still won’t have an end-to-end AI supply chain, but it will be less dependent on production in Taiwan.What do TSMC and Taiwan get from the announcement? Relief from tariff threats, they hope. Trump warned Taiwan it could face levies of “25 per cent or 30 per cent or 50 per cent” in the future. As the industry’s dominant supplier, TSMC could no doubt pass some tariff-induced price increases on to customers. But if these new plants prevent tariffs in the first place, the investment may prove to be money well spent.    A second concern for TSMC is, as Trump put it, “Taiwan pretty much has a monopoly” over high-end processors. From AT&T to IBM, Microsoft to Alphabet, tangles with antitrust authorities have historically been common for tech companies with 90 per cent market share, as TSMC has in advanced chipmaking. This is another rationale for solidifying ties with an administration that has talked tough on tech antitrust.A final explanation is less about TSMC and more about Taiwan. Some in the country worry that TSMC’s international expansion undermines the “silicon shield” they believe has helped to deter Chinese escalation. However, even with these new plants, the majority of TSMC’s production will remain onshore. Taiwan’s leaders hope that by investing in the US economy they can keep Trump invested in their security. So TSMC is betting its future on being even more deeply bound to the US.   More

This is an on-site version of the White House Watch newsletter. You can read the previous edition here. Sign up for free here to get it on Tuesdays and Thursdays. Email us at whitehousewatch@ft.comWelcome back to White House Watch. Treasury secretary Scott Bessent will speak at the Economic Club of New York today. For now, let’s get into:The US stopping intelligence sharing with Ukraine Trump giving carmakers a tariff reprieve Why farmers are so frustrated The Trump administration has furthered its break with Ukraine by announcing that it will stop sharing intelligence with Kyiv, just days after halting military aid to the war-torn nation. “[Donald] Trump had a real question about whether [Ukrainian] President [Volodymyr] Zelenskyy was committed to the peace process, and he said let’s pause,” John Ratcliffe, director of the CIA, said of the decision. He added that there was hope that the support could be restored. “I want to give a chance to think about that, and you saw the response that President Zelenskyy put out,” Ratcliffe said. “So I think on the military front and the intelligence front, the pause that allowed that to happen, I think will go away.”US intelligence has been essential in helping Ukraine to identify and strike Russian military targets. “If they don’t reverse it soon, it will become really difficult for the Ukrainians because it takes away their battlefield advantage,” said a senior western official.After Trump’s heated Oval Office clash with Zelenskyy last week, relations between Washington and Kyiv deteriorated before more recent signs of repair. Zelenskyy made a show of contrition on Tuesday, saying the meeting was “regrettable” and Ukraine was “ready to come to the negotiating table as soon as possible”. He expressed readiness to sign a deal with Trump “at any time” that would give the US the rights to profit from exploiting Ukraine’s natural resources. (Our commodities correspondent breaks down why rare earths have been in the spotlight.) Amid halting efforts to stop the fighting in Ukraine, UK defence secretary John Healey flew to Washington yesterday for talks with his US counterpart Pete Hegseth on the “parameters” of a European peace plan for Ukraine.Healey will aim to convince Hegseth that the US needs to offer a security guarantees in order for the plan to work. “That’s a work in progress,” admitted one British official, with studied understatement.The latest headlinesSome content could not load. Check your internet connection or browser settings.What we’re hearingFarmers across the US are already struggling because of depressed commodity prices. With Trump’s tariffs on Mexico and Canada — and follow-on retaliatory levies — rural America is bracing for impact. [Free to read] “Contrary to what the president thinks, this means nothing but pain,” said Aaron Lehman, head of the Iowa Farmers Union. “Our domestic markets aren’t prepared to pick up the slack and that means lower prices for what we grow.”While farmers supported Trump’s goal of ensuring fair trade with other nations, his current plans were going to hurt, said Zippy Duvall, head of the American Farm Bureau Federation.“For the third straight year, farmers are losing money on almost every major crop planted,” said Duvall. “Adding even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear.”After Washington hit most Canadian and Mexican imports with 25 per cent tariffs this week and outlined plans to double levies on Chinese products, Beijing responded by threatening 10 per cent to 15 per cent tariffs on US agricultural goods from March 10. Canada has imposed levies on US imports, and Mexico said it would follow suit.Some content could not load. Check your internet connection or browser settings.“Farmers are frustrated,” said Caleb Ragland, president of the American Soybean Association. “Tariffs are not something to take lightly and ‘have fun’ with.” “Not only do they hit our family businesses squarely in the wallet, but they rock a core tenet on which our trading relationships are built, and that is reliability,” he added.Meanwhile, other nations are well positioned to step in if trade tensions prompt importers to turn their backs on the US. Brazil and other soyabean producers were expecting abundant crops this year, Ragland said, and “are primed to meet any demand stemming from a renewed US-China trade war”.ViewpointsEconomics commentator Chris Giles has a useful primer on the 10 things you should know about Trump’s tariffs but were afraid to ask.Trump’s address to Congress on Tuesday night is more likely to be remembered as a spectacle than for the content of what he said, writes Edward Luce. Elon Musk is the fox in the henhouse of science, argues Anjana Ahuja, as critics within the UK’s Royal Society protest against fellow member Musk’s role in threatening scientific research. The Washington strategy team at Jefferies sought to find out whether there’s any truth to Doge’s claim to have saved $105bn. The takeaway: no, writes Bryce Elder in Alphaville.Recommended newsletters for youFT Exclusive — Be the first to see exclusive FT scoops, features, analysis and investigations. 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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Turkey has cut interest rates for a third consecutive month as a fall in annual inflation to the lowest level in almost two years bolstered policymakers’ case to bring down borrowing costs.The central bank’s monetary policy committee on Thursday lowered the benchmark one-week repo rate by 2.5 percentage points to 42.5 per cent, in line with forecasts by economists surveyed by Bloomberg and Reuters.The latest cut brings the total reduction to 7.5 percentage points since December, when the bank ended an 18-month period of raising or keeping rates high to slow runaway inflation driven by ultra-low interest rates favoured by President Recep Tayyip Erdoğan.That had sparked a painful cost of living crisis that has battered households, especially pensioners and the third of Turks who earn the minimum wage. Erdoğan pivoted sharply after winning re-election in May 2023, allowing the central bank to use high interest rates to bring down inflation that peaked at 86 per cent in October 2022. Official data released this week showed inflation in Turkey had declined to 39.1 per cent in February, the lowest level since June 2023, and the central bank said in a statement accompanying the rate cut that it saw “disinflationary” domestic demand continuing in the first quarter.It reiterated pledges to maintain tight monetary conditions to adhere to a disinflation programme and that the policy rate would be set “on a meeting-by-meeting basis”. “Going forward, increased co-ordination of fiscal policy will also contribute significantly to this process,” the statement also said.However, pressure on the government to maintain popular spending programmes may increase as opinion polls showed approval for Erdoğan’s ruling party had fallen over the state of the economy, according to Wolfango Piccoli, co-president of consulting group Teneo. “Such co-ordination is unlikely to materialise,” he said.Another risk may arise from the disconnect between the central bank’s outlook of year-end inflation of 24 per cent with businesses’ expectation of 28 per cent, according to the bank’s latest survey.“Inflation expectations from households and businesses exceed the central bank’s projections, posing a risk to the disinflation process,” Piccoli said.Turkish depositors continue to save in foreign currencies to hedge against concerns that the lira could depreciate. That has helped contribute to a decline of about 3 per cent in the currency against the US dollar this year. More

The rate cut brings the ECB’s deposit facility rate, its key rate, to 2.5% — a move that markets had widely priced in before the announcement.
The central bank updated the language in its decision to say monetary policy was becoming “meaningfully less restrictive.”
Data published earlier this week showed that inflation in the region eased to 2.4% in February, down from January’s reading but slightly higher than expected.

European Central Bank (ECB) President Christine Lagarde speaks to present the bank’s 2024 Annual Report to the European Parliament, in Strasbourg, eastern France, on February 10, 2025.
Frederick Florin | Afp | Getty Images

The European Central Bank on Thursday cut interest rates by 25 basis points and updated the language in its decision to say monetary policy was becoming “meaningfully less restrictive.”
The cut brings the ECB’s deposit facility rate, its key rate, to 2.5% — a move that markets had widely priced in before the announcement.

The central bank’s six rate cuts over the past nine months have come amid lackluster economic growth in the region, and as the specter of tariffs on EU imports to the U.S. looms large.
“Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up,” the central bank said in a statement Thursday.
Euro zone headline inflation remains below the 3% mark, despite picking up in the last few months of 2024.
Data published earlier this week showed that inflation in the region eased to 2.4% in February, down from January’s reading but coming in slightly higher than expected. So-called core inflation — which strips out food, energy, alcohol and tobacco costs — as well as services inflation also dipped after proving sticky for several months.
The euro area’s seasonally adjusted gross domestic product, meanwhile, eked out a 0.1% increase in the fourth quarter, the latest reading from statistics agency Eurostat showed.

Tariff uncertainty

The Thursday rate decision comes as U.S. President Donald Trump pursues an aggressive global tariff policy and European leaders look to increase defense spending.
Tariffs on goods imported to the U.S. from Europe have not yet been announced, but have been repeatedly threatened by Trump. The extent of any such duties is currently unclear, and the option for negotiation might still be on the table.
European countries are also looking to boost their defense and security budgets, as relations between the U.S. and Ukraine have soured. An increase in defense spending could affect key economic markers like inflation and growth.
Analysts told CNBC that these geopolitical developments could result in more disagreement than usual within the ECB’s Governing Council when it comes to monetary policy decision-making in the coming months.
Officials have also appeared split on where the so-called “neutral rate” — where policy is neither stimulating nor restrictive — lies and if rates may need to go below it to help entice economic expansion.
This is a breaking news story. Please refresh for updates. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.US grain prices have fallen sharply in recent weeks as retaliatory tariffs on the country’s agricultural exports fuel fears that a trade war will create a supply glut on global markets.Corn, wheat and soyabean prices in Chicago have dropped since mid-February, coming under further pressure this week after China and Canada said they would impose a range of tariffs on US foodstuffs.Traders have been forced to rapidly rethink their outlooks as the major trading partners threaten tariffs on some of their main exports. On Thursday, US President Donald Trump said he would postpone tariffs on most goods from Mexico for a month. Howard Lutnick, US commerce secretary, said the reprieve would probably also be extended to Canada. However, Canadian Prime Minister Justin Trudeau warned his country would be in a trade war with the US for the “foreseeable future”. Futures rebounded on Thursday although still remain far below their mid-February highs. Wheat, which has slumped more than 17 per cent in three weeks, rebounded 2.1 per cent to $5.60 per bushel following Trump’s decision. Contracts tracking corn, which have fallen 9 per cent in the last month, rose 2.8 per cent to $4.52 a bushel. Soyabeans, which had fallen 8 per cent since mid-February, added 1.5 per cent to 1,017 cents a bushel.China announced on Tuesday that it would impose a 10 per cent tariff on imports of soyabeans, sorghum, pork and beef from the US, alongside a 15 per cent levy on chicken, wheat, corn and cotton.As the world’s biggest pork producer, China accounts for more than 40 per cent of US soyabean sales. Both soyabeans and corn are primarily used for livestock feed. Canada also set 25 per cent levies on US-imported grains, meat and dairy products on expectations of an influx of US supply.Mexico, the biggest market for US corn, said it planned to announce its own countermeasures this weekend. “If Mexico stops buying US corn, there will be a surplus, creating more availability for other countries,” said Carlos Mera, head of agricultural commodities at Rabobank, “That will push down prices.”The retaliatory tariffs come in response to Trump saying he would impose 25 per cent duties on imports from Canada and Mexico and raise tariffs on China to 20 per cent, as the US agriculture trade deficit heads towards a record $49bn this year.Mexico is a big buyer of US wheat, which it uses mainly for milling to make flour. Prices have also retreated on speculation over a peace deal between Ukraine and Russia, brokered by Trump. Ukraine is one of the world’s biggest grain producers. The trade war has prompted a backlash from US farmers, whose income has plummeted over the past three years as prices tumble and the cost of inputs, such as fertiliser and seeds, has gone up. They have also been hit by Trump’s freeze on funding from the Inflation Reduction Act, which supported sustainable agriculture projects.“Farmers are facing a troubling economic landscape due to rising input costs and declining corn prices,” said Kenneth Hartman Jr, president of the National Corn Growers Association. “We ask President Trump to quickly negotiate agreements with Mexico, Canada and China that will benefit American farmers.”The US agriculture department last week reported an increase in the projected corn planting area to 94mn acres, exceeding market expectations.The larger than expected acreage prompted speculative funds, which had built near-record long positions in corn, to unwind their bets. Adverse weather in Brazil and Argentina, coupled with Mexico accelerating corn imports ahead of tariffs, had previously drawn hedge funds into the market.Andrey Sizov, managing director of grain consultancy SovEcon, expressed scepticism about a surge in wheat supply, but said reduced freight costs for Ukrainian grain could lower prices. “The insurance premium currently factored into shipping costs is substantial,” he said. More