Economy

The consumer price index for February is forecast to show an increase of 0.3% for a broad array of goods and services across the U.S economy.
On an annual basis, that would put headline inflation at 2.9% and core inflation at 3.2%, moving lower but still above the Fed’s 2% target.

A person browses a grocery store following the announcement of tariffs on Canadian and Mexican goods by U.S. President Donald Trump, in Toronto, Ontario, Canada, on March 4, 2025.
Arlyn Mcadorey | Reuters

With concerns running high that President Donald Trump’s tariff policies will aggravate inflation, a report Wednesday could deliver some mildly encouraging news.
The consumer price index for February is forecast to show an increase of 0.3% for a broad array of goods and services across the largest economy in the world. That projection holds both for the all-items measure and the core index that excludes volatile food and energy prices.

On an annual basis, that would put headline inflation at 2.9% and the core reading at 3.2%, both 0.1 percentage point lower than in January.
The good news is those rates represent a continuation of a steady but quite slow drawdown in the inflation rate over the past year. The bad news is that both also are still well above the Federal Reserve’s 2% goal, likely keeping the central bank on hold again when it meets next week.
“We expect broad-based deceleration, with weaker core goods and services,” Morgan Stanley economist Diego Anzoategui said in a note. “Why still elevated? For three reasons: (1) we expect used car prices rise because of past wildfires, (2) according to our analysis, certain goods and services show residual seasonality in February, and (3) we think supply constraints keep airfares inflation elevated in February.”
The big question now is where things head from here.
Trump’s tariff moves have stirred market worries of both rising inflation and slower economic growth. With Fed officials historically more attuned to the inflation side of the dual mandate for price stability and full employment, a prolonged period of high prices could put the Fed on the sidelines for longer.

However, Federal Reserve Chair Jerome Powell and his colleagues have indicated that in their view, tariffs historically have been one-off price increases and not fundamental inflation drivers. If that’s also the case this time, policymakers might look through any price blips from trade policy and continue to lower rates, as markets are projecting this year.
Goldman Sachs economists expect the Fed to stay on hold until policy comes into clearer view, then likely lower the central bank’s benchmark lending rate by a half percentage point later this year.
“We see further disinflation in the pipeline from rebalancing in the auto, housing rental, and labor markets, though we expect offsets from catch-up inflation in healthcare and a boost from an escalation in tariff policy,” the firm said in a note.
The Bureau of Labor Statistics will release the CPI report at 8:30 a.m. ET.

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Investors fear Donald Trump’s tolerance for a steep stock sell-off is far higher than it was in his first term as they lose faith that financial markets will restrain the US president’s tariffs and spending cuts.US stocks have slumped in recent days, with the S&P 500 sinking more than 8 per cent from a record high hit less than three weeks ago, as Trump’s tariffs have triggered concerns over the trajectory of the world’s largest economy. Many investors and Wall Street banks had bet Trump would ultimately back off his most severe tariff threats and cuts to the federal government if markets respond violently, but hopes for a so-called Trump put have dimmed as markets shudder.“Markets are questioning the notion that the Trump administration would adapt policies in response to equity market volatility or economic growth concerns,” UBS told clients on Monday evening. Alex Kosoglyadov, a managing director of global equity derivatives at Nomura, said in late February “people were wondering whether [Trump] was going to take his foot off the gas pedal on tariffs and some of the federal spending cuts that were spooking markets”. “In the last couple of trading days, sentiment turned in the sense that there were very clear signs that the Trump ‘put’ either didn’t exist or was set lower than where people thought it was,” he said. The rising sense of gloom has not been limited to the stock market: Goldman Sachs and Morgan Stanley have trimmed their expectations for US economic growth on worries about tariffs, and retaliation from trading partners. Delta Air Lines on Monday evening also warned economic “uncertainty” had hit its business, prompting the carrier to sharply reduce its outlook for sales and earnings in the first quarter. The Vix index, a measure of expected volatility in US stocks, has soared from 12 to 28, above its long-term average of 20. The tech-focused Nasdaq Composite, which has surged in the previous two years, is down more than 13 per cent from its mid-December record high.During Trump’s first term, financial market turmoil was widely seen as a crucial guardrail in forcing him to reverse course on policies that were seen by investors as harmful, at least in the short term, to US economic growth. “Everyone thought the only way he backs off is if the stock market plummets,” said one trading executive at a Wall Street bank. “What people didn’t see was he’d change his narrative if the stock market plummets.” The White House doubled down on its dismissal of the financial market tumult following Monday’s steep equities sell-off.“We’re seeing a strong divergence between animal spirits of the stock market and what we’re actually seeing unfold from businesses and business leaders, and the latter is obviously more meaningful than the former on what’s in store for the economy in the medium to long term,” a White House official said.As US stocks have fallen sharply in response to the threat of tariffs against its trading partners, Trump made a big U-turn, delaying most of the levies on Canada and Mexico until April but has kept tariffs on China in place. On Tuesday, the president announced an additional 25 per cent tariff on Canadian steel and aluminium imports that will take effect on Wednesday. The move comes on top of an existing plan to impose a 25 per cent levy on steel and aluminium imports from all of America’s trading partners. US stocks extended their declines in early trading on Tuesday, with the S&P 500 down 1.5 per cent and the Nasdaq dropping 1.2 per cent.The White House on Tuesday continued to dismiss widespread concerns over the market turmoil, saying the US is undergoing an “economic transition”. “When it comes to the stock market, the numbers that we see today, the numbers we saw yesterday . . . are a snapshot of a moment of time,” said White House press secretary Karoline Leavitt.“We are in a period of economic transition,” she added.The drumbeat of comments from top Trump officials playing down fears of stock market trouble has been consistent.Treasury secretary Scott Bessent fanned investor concerns at the weekend, when he appeared to dismiss the idea that Trump would curtail some of his economic policies if the stock market were to keep tumbling.“There’s no put,” he said. “The Trump call on the upside is, if we have good policies, then the markets will go up.”Bessent also said the US economy might need a “detox period” to be less dependent on government spending.“There’s going to be a natural adjustment as we move away from public spending to private spending,” he said. “The market and the economy have just become hooked. We’ve become addicted to this government spending. And there’s going to be a detox period.”For Trump, “time is the only constraint”, said Barry Bannister, chief equity strategist at US bank Stifel. “Year one of any new administration is the time to break some eggs to make an omelette and the [Trump] administration’s ambitions are a broad revamp of the economic order.”But the risk that growth cools and inflation rises — known as stagflation — was growing as Trump pressed ahead on tariffs on America’s biggest trading partners, he added, leaving US equities exposed to a “pincer movement” of potentially slowing earnings per share and lower price to earnings ratios. “Will [Trump] have the fortitude to take serious pain? That’s an open question,” said Shep Perkins, chief investment officer at Putnam Investments. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world“We were at war with a dictator; now we are fighting against a dictator supported by a traitor.” Thus, in a brilliant speech, did Claude Malhuret, hitherto a little-known French senator, define the challenge of our age. He was right. We now know that the US and so the world have been transformed for the worse. But this should no longer be all that surprising. The doubt rather is over how Europe can and will respond.In the 1970s, I had the good fortune to live and work in Washington DC. This was the era of Watergate. I watched the congressional hearings on the ill-doing of President Richard Nixon with admiration. It swiftly became evident that members of Congress of both parties took their obligation to protect the constitution both seriously and literally. Nixon was about to be impeached and convicted. Warned of this, he duly resigned.Contrast this with the second impeachment of Donald Trump in February 2021 on the far greater crime of inciting an insurrection aimed at overturning the results of the 2020 presidential election. It is impossible for anybody sane to doubt his guilt. But only seven Republican senators voted for conviction. It was not enough. In letting him off, Congress killed the constitution. What has happened since that moment was predictable and predicted.Some content could not load. Check your internet connection or browser settings.Since the 1970s the US has suffered a moral collapse from which it is unlikely to recover. We see this daily in what this administration is being allowed to do to US commitments, to allies, to the weak, to the press and to the law. My colleague John Burn-Murdoch has also shown that Maga attitudes are close to those of today’s Russians: power will not be yielded easily.This is a truly historic catastrophe. But if the US is no longer a proponent and defender of liberal democracy, the only force potentially strong enough to fill the gap is Europe. If Europeans are to succeed with this heavy task, they must begin by securing their home. Their ability to do so will depend in turn on resources, time, will and cohesion.Some content could not load. Check your internet connection or browser settings.Undoubtedly, Europe can substantially increase its spending on defence. While there has been a rise in the share of GDP spent on defence over the past decade in the 10 most populous EU countries, plus the UK and US, Poland is the only one that spends more than the US, relative to GDP. Fortunately, ratios of fiscal deficits and net debt to GDP of the EU27 are far lower than those of the US. Moreover,the purchasing power of the GDP of the EU and UK together is bigger than that of the US and dwarfs Russia’s. In sum, economically, Europe has the resources, especially with the UK, even though it will need the reforms recommended by Mario Draghi last year if it is to catch up technologically. (See charts.)Some content could not load. Check your internet connection or browser settings.Yet this economic potential cannot be turned into strategic independence from the US overnight. As the London-based International Institute for Strategic Studies shows, European weaponry is too dependent on US products and technology for that to be possible. It will need a second and scarcer ingredient — time. This creates a vulnerability shown, most recently, by the feared impact of the cessation of US military support for Ukraine. Europe will struggle to supply what will be missing.The third ingredient is will. Europeans have to want to defend the vaunted “European values” of personal freedom and liberal democracy. To do so will be economically costly and even dangerous. In Europe, too, rightwing elements with views similar to those of Maga Republicans exist, even if these are not as dominant on the conservative side of politics as in the US. But some countries — Hungary, Slovakia and maybe soon Austria — will have pro-Putin governments. Marine Le Pen in France has more than merely flirted with being pro-Putin in the past. Also frightening is the rise of the far right and far left of Germany. In short, Europe has “fifth columns” almost everywhere.Some content could not load. Check your internet connection or browser settings.At the same time, some important European leaders and countries, Germany above all, are showing some will. In particular, Friedrich Merz, expected to be the next German chancellor, and his potential coalition partners agreed to amend the “debt brake” and spend hundreds of billions of euros on infrastructure and defence. Merz also said that Germany would do “whatever it takes” to fend off “threats to freedom and peace” in Europe. Yet will he deliver? The answer to that question is unclear.Some content could not load. Check your internet connection or browser settings.Last but not least is the essential ingredient of cohesion. Unlike the US, China or Russia, Europe is not a state. Indeed, contrary to the hysteria of the British Brexiters, it is far from being a state. Its ability to act strategically is fundamentally hampered by the twin facts that it lacks a shared politics and shared finances. It is better seen as a club that needs a high degree of unanimity if it is to act effectively and legitimately in matters of foreign policy and defence. Europeans were free riders on the US because that was the natural thing for each of them to do. Unfortunately, much the same still applies if the US abandons them. Many members will be inclined to leave the burden to a few big powers. But even co-ordinating the policies and militaries of Germany, France and the UK will be hard, because this is to be done by a committee of rough equals — it lacks a leader.Some content could not load. Check your internet connection or browser settings.In brief, we have an irresistible force and an immovable object: Trump’s unreliability is the force; and the difficulties in getting Europe to mobilise its will are the immovable object. Moreover, overcoming the latter has to be done quickly. Until it is done, Europe will still rely heavily for its security on an unreliable US.If Europe does not mobilise quickly in its own defence, liberal democracy might founder altogether. Today feels a bit like the 1930s. This time, alas, the US looks to be on the wrong side.martin.wolf@ft.comFollow Martin Wolf with myFT and on X More

The Job Openings and Labor Turnover Survey showed that postings rose to 7.74 million on the month, up 232,000 from December, slightly ahead of the 7.6 million forecast.
Quits, a measure of worker confidence in the ability to move to other jobs, moved higher to 3.27 million, an increase of 171,000.

Attendees and recruiters at a City Career Fair hiring event in Sacramento, California, US, on Thursday, Feb. 27, 2025. 
David Paul Morris | Bloomberg | Getty Images

Job openings increased in January, providing at least a momentary sign of stability as questions linger over the labor market, the Bureau of Labor Statistics reported Tuesday.
The Job Openings and Labor Turnover Survey showed that postings rose to 7.74 million on the month, up 232,000 from December and slightly ahead of the Dow Jones estimate for 7.6 million. The tally kept the ratio of openings to available workers around 1.1 to 1.

Much of the gain came from retail, which saw an increase of 143,000 available positions, while finance gained 122,000. Professional and business services saw a decrease of 122,000 and leisure and hospitality fell by 46,000.
Quits, a measure of worker confidence in the ability to move to other jobs, moved higher to 3.27 million, an increase of 171,000.
While job openings were increasing, hires and layoffs held basically flat. Actions to pare the federal government workforce by the newly created Department of Government Efficiency advisory board, led by Elon Musk, were not captured in the January data.
“For now, the labor market remains stable. But that’s just January,” said Julia Pollak, chief economist at ZipRecruiter. “The February report will likely look very different: federal government openings will plunge, quits will spike, and layoffs could finally begin to rise. In other words, calm today, but turbulence ahead.”
The JOLTS data provides some positive news for a labor market that otherwise has shown signs of softening. Nonfarm payrolls gains in February came in a bit below market expectations, and a recent survey from Challenger, Gray & Christmas indicated a surge in layoff announcements during the month.

Most recently, job review site Glassdoor found employee confidence to be at the lowest in the history of the firm’s survey, going back to 2016.
Federal Reserve officials consider the JOLTS report an important indicator of labor market slack. The central bank is expected to keep its key lending rate anchored in a range between 4.25%-4.5% when it meets next week.

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Sir Keir Starmer will not impose immediate counter-tariffs against Washington if Donald Trump hits Britain on Wednesday with his 25 per cent global levy on steel and aluminium imports to the US.Downing Street said the UK premier would take a “cool-headed” approach as he tries to keep Britain out of any wider transatlantic trade war. “You won’t get immediate counter-tariffs,” said one UK official.Starmer urged the US president on Monday in a phone call not to target British steel and aluminium makers, but is braced for the first Trump tariffs to be imposed on the UK in the early hours of Wednesday.The prime minister has pinned his hopes on Trump exempting the UK from wider tariffs as part of a possible US-UK economic deal — initially focused on technology — discussed by the two leaders in the White House last month.The US accounted for about 182,000 tonnes of Britain’s steel exports in 2024 — about 7 per cent of total exports but 9 per cent by value and worth more than £400mn.Allies of Jonathan Reynolds, business and trade secretary, said the minister will stress the government support already being given to the UK steel industry as he attempts to avoid inflaming trade relations with Washington.Reynolds’ colleagues say the minister could issue some kind of response if the US steel tariffs are applied, but it will not include an immediate wave of counter-tariffs of the kind seen during Trump’s first term in office. Officials declined to say what it might include.In 2018 Britain, which was then part of the EU, levied tariffs on iconic US products such as motorcycles, whiskey and jeans after Trump imposed tariffs of 25 per cent on steel and 10 per cent on aluminium from most countries.Those tariffs were suspended in March 2022 under a deal with the Biden administration and replaced by a tariff-rate quota system, allowing 500,000 tonnes of UK steel to enter the US annually without incurring duties.Reynolds told the Financial Times in Tokyo last week that he would “stand up” for the British steel industry and that retaliatory measures “already exist”, as he tried to exert pressure on the US administration not to hit the UK with steel tariffs.But the UK position has softened as officials in Whitehall took the view that Trump was determined to press ahead. Ministers have reserved the right to reactivate the suspended tariffs.British officials stressed that only 5 per cent of steel production by volume goes to the US, much of it highly specialised. For example, steel made in Sheffield is used by the US Navy for submarine casings.Reynolds, who is expected to give a statement to MPs on Wednesday if the US tariffs are imposed, will also note that the government has committed up to £2.5bn to rebuild the steel sector, British officials said.He will point to a new scheme capping energy costs for industries such as steel that comes into force next month, which would cut the electricity costs of energy intensive sectors such as steel by between £320mn and £410mn this year.British steel exports have fallen in recent years amid a wider industry decline but the US is the UK’s second-largest export market after the EU.Britain’s steel industry has warned that the US tariffs could deal a “devastating blow” to the sector at a time of shrinking demand and high costs. Chrysa Glystra, director for trade and economic policy at UK Steel, the trade lobby group, said on Tuesday that it was “disappointing” that the UK government had so far not secured any exemptions to the incoming tariffs although the industry was mindful of the effort made by ministers. Some UK producers, said Glystra, were already seeing their “commercial position in the US being challenged”, with anecdotal reports that US customers had paused additional orders given the uncertainty over the tariff situation.Nadine Bloxsome, chief executive of the Aluminium Federation, said UK producers were already reporting “early signs of business uncertainty”. The concern, she said, was not just about “immediate loss of contracts but the longer-term risk of trade diversion, where materials originally destined for the US are redirected into alternative markets, including the UK”. The US accounted for about 10 per cent of exports of aluminium by volume last year, worth around £225mn. More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersAfter another tumultuous week in the US, Federal Reserve chair Jay Powell was sanguine in a speech on Friday, saying the US economy remained “in a good place” despite “elevated levels of uncertainty”. If this was an effort to reassure markets, it did not work. Fears of a US recession have not abated, with even President Donald Trump not dismissing the possibility, and equities took another tumble on Monday. Is the US headed for recession? Email your thoughts: joel.suss@ft.com Looking through tariffs?A primary concern for households and businesses is the stop-start nature of Trump’s trade wars. Are import duties going to apply to the US’s closest trading partners? Nobody knows, or perhaps can know, given the capricious nature of the commander-in-chief.The Fed is, at least outwardly, less worried about tariffs. Speaking on February 17, Fed governor Christopher Waller said “any imposition of tariffs will only modestly increase prices and in a non-persistent manner. So I favour looking through these effects when setting monetary policy.” On Friday, Powell noted the “textbook” view of looking through a one-time increase in prices, but did suggest why reality might differ: “If it turns into a series of things . . . if the increases are larger . . . what really would matter is what’s happening with longer-term inflation expectations.”Consider several rounds of impending tariffs ostensibly to come, all at different dates — Mexico and Canada, aluminium and steel, reciprocal tariffs, tariffs on the EU. Consider also retaliations such as the 25 per cent surcharge for Ontario electricity exports, in addition to threats of cutting them off altogether. Perhaps we might check off “a series of things” and “larger” increases. Great expectationsWhat about inflation expectations? In his remarks, Powell noted that “some near-term [inflation expectation] measures have recently moved up. We see this in both market and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.” But, resonating with the generally optimistic tone of his speech, Powell added: “Most measures of longer-term expectations remain stable and consistent with our 2 per cent inflation goal.”This is true when taking a first look at long-run inflation expectations. But, worryingly for the Fed, a more careful examination of the expectations distribution is flashing red. Median long-term inflation expectations over five years from the University of Michigan’s consumer survey is in line with Powell’s message of “stable and consistent”. But measures of dispersion — or disagreements between households — have not re-anchored back to the pre-pandemic norm and are spiking again. Some content could not load. Check your internet connection or browser settings.This is driven by the right tail of expectations. Since mid-2024, 10 per cent or more of respondents expected annual inflation to average an extreme 15 per cent or more over the next five years. By contrast, the average proportion was less than 1 per cent in 2019. Uncertainty (the proportion of those responding that there will be inflation but unsure of how much) has also shot up recently. This sharp move is partly an artefact of the Michigan survey moving to online responses only from July 2024 — answering by phone results in a lower proportion of extreme inflation estimates (perhaps due to social desirability bias, where talking to someone directly makes you answer differently). It might also partly reflect partisanship biases, which are large in the Michigan survey.But only partly. An analysis of just the web-based respondents from 2017 onwards reaches the same conclusion: “Long-run expectations have risen in recent months and are elevated relative to the two years pre-pandemic, but remain below peak readings during the post-pandemic inflationary episode. They exhibit substantial uncertainty, particularly in light of policy changes under the new presidential administration.” Widening disagreement and uncertainty about where inflation is headed in the long term also shows up in the New York Federal Reserve Board’s survey of consumer expectations, even as median expected inflation is back to normal. Some content could not load. Check your internet connection or browser settings.Let’s deal with some possible objections. Household surveys elicit the average Joe’s inflation expectations, and your average Joe may have very foggy understanding of inflation, or may overweight certain items in their own consumption basket. Professional forecasters are unsurprisingly much less dispersed in their long-run estimates.But household inflation surveys capture wider society’s inflation beliefs, and households act on their beliefs about inflation, no matter how far it deviates from “rational”.US exceptionalism?Elevated divergence of expectations is not just an American phenomenon — data from Europe also shows levels that have not yet normalised. Bank of England rate-setter Catherine Mann pointed to the fatter right tails of the UK expectations distribution in a speech last week. More than 20 per cent of respondents to the BoE’s inflation attitudes survey think prices will go up by 5 per cent or more in five years’ time. This is higher than the proportion of respondents anchored at the 2-3 per cent range (roughly 15 per cent), and relative to a 2015-2019 average of roughly 13.5 per cent.Some content could not load. Check your internet connection or browser settings.It’s not just households skewing higher. In the Eurozone, a thick right tail of inflation expectations is evident in a survey of firms. Long-run expectations have also become more strongly correlated to short-run expectations, suggesting that the re-anchoring process following the post-pandemic inflation surge is not yet complete. Dispersion and uncertainty Higher inflation disagreement does not bode well for a Fed that hopes to “look-through” tariff price effects. For one, inflation dispersion is a good predictor of future inflation, as higher expected inflation becomes self-fulfilling. Mann argued that “keeping track of the tails matters”. She also presented evidence that large inflation shocks mean “expectations formation becomes more backward-looking”.And It’s not just households that take time to get over an inflation shock. A recent working paper corroborates this story using implied inflation expectations derived from financial markets. The authors find the 2021-24 high-inflation episode has left “scars” evidenced by “persistently elevated probabilities of a future inflation disaster”. Inflation uncertainty also matters, and perhaps more than dispersion. Some experimental work shows that higher uncertainty led to lower consumption of durable goods, and portfolios comprising safer assets. Other work shows how inflation uncertainty can lead to a drop in investment and industrial production.Add growing inflation uncertainty on top of the other sources of uncertainty the Fed and other central banks need to be wary of. Strong and credible communication can help reduce uncertainty and lower inflation disagreement. But keeping inflation expectations anchored depends on central bank credibility, which depends heavily on central bank independence, both in law and practice. As concern mounts about political interference at the Fed, expectations may disperse further. The required policy response to tariffs may need to veer far from the textbook.What I’ve been reading and watchingAnticipating my question at the top, Tej Parikh has a nice chart-filled piece arguing that the US economy is heading for a recession.It is not common for former central bankers to become political leaders, but that’s just what former Bank of Canada and Bank of England governor Mark Carney has accomplished after winning the leadership election for the Canadian Liberals. Ilya Gridneff has an excellent profile. The Atlanta Fed’s GDP nowcast showing a sharp contraction in the US economy this quarter caused a stir. Over in Alphaville, Valentina Romei and Robin Wigglesworth dig into the details and uncover the main culprit — “a truly massive surge in US gold imports”. The “gold adjusted” nowcast is for small, yet positive growth of 0.4 per cent. The Economist digs into its archives to show how Donald Trump’s tariffs are a throwback to the 1930s.Daniel Susskind writes how the UK Office for Budget Responsibility has become “the ultimate arbiter of whether the government’s plan to achieve its central mission — more economic growth — is the right one”.A chart that mattersAs if signs of the inflation anchor slipping was not worrying enough for the Fed, there are some early indications of supply chain worries. Negative sentiment in the Fed’s own beige book about supply chains spiked in March (left panel), although levels are still far below the pandemic. US corporates are also increasingly mentioning supply chain risk in earnings calls (right panel).Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here 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 Americas. We’ll bring you right up to date with events on global stock markets after a nerve-racking day and here’s what else we covering: US-Ukraine talks get under way in JeddahPhilippines’ ex-president Rodrigo Duterte arrested in Manila And the British fintechs trying to crack the US marketStock markets around the world are calmer this morning after a sell-off yesterday that saw high-growth technology shares tumble as worries about the outlook for the US economy and Donald Trump’s trade policy deepened.The S&P 500 index closed down 2.7 per cent, after falling 3.1 per cent last week in its worst weekly performance in six months. The tech-focused Nasdaq Composite sank 4 per cent, its worst day in two and a half years. The tech-heavy index is down more than 13 per cent from its December peak, leaving it in correction territory. Futures contracts point to a calmer start on Wall Street, while markets in Europe edged lower on Tuesday morning and Asian markets recovered earlier losses.US tech stocks — which had driven Wall Street markets higher in the previous two years — were among the biggest laggards, extending a recent rout. Tesla, the electric-car company headed by Trump ally Elon Musk, plummeted 15.4 per cent. It has now given up all of those post-election gains and has fallen more than 50 per cent since its December high. Chipmaking giant Nvidia, which has been one of the biggest winners from recent investor enthusiasm for artificial intelligence, fell 5.1 per cent.Financial services companies also fell. Morgan Stanley and Goldman Sachs were down 6.4 per cent and 5 per cent respectively, while shares in private investment groups KKR and Ares shed 6.2 per cent and 8.9 per cent respectively.“This big sell-off feels ugly, it feels nasty,” said Drew Pettit, an equity strategist at Citigroup. “We were coming off very high sentiment and very high growth expectations. All of this is just recalibrating to the new risks that are in front of us,” he added.The latest jolt of volatility, which also dragged down markets in Europe and Asia, came after the US president on Sunday declined to rule out a recession or a rise in inflation as he dismissed business concerns over lack of clarity on his tariff plans.The White House yesterday dismissed the sell-off and doubled down on its economic and trade policies. “We’re seeing a strong divergence between animal spirits of the stock market and what we’re actually seeing unfold from businesses and business leaders, and the latter is obviously more meaningful than the former on what’s in store for the economy in the medium to long term”. Read more on how markets in Asia and Europe are trading today.Trump and Tesla: The US president yesterday promised to buy a Tesla in a rebuke to “Radical Left Lunatics” who, he said, were “trying to illegally and collusively boycott Tesla”.Opinion: Financial markets have witnessed a change that is upending many consensus trades. Mohamed El-Erian asks: What is behind the dramatic shift?For more markets commentary, sign up for our Unhedged newsletter here if you’re a premium subscriber, or upgrade your subscription. Here’s what else we’re watching today:Congress: The Republican-controlled House of Representatives could vote as early as today on legislation that would avert a weekend government shutdown.Greenland: Voters go to the polls to elect the 31 members of parliament amid a long-simmering independence debate. Portugal: The centre-right government of Luís Montenegro faces a confidence vote, triggered by a scandal over his family business.Results: Department store chain Kohl’s is set to post a fall in fourth-quarter revenue. See our Week Ahead newsletter for the full list.Five more top stories1. Officials from the US and Ukraine have kicked off high-stakes talks in the Saudi Arabian coastal city of Jeddah. The talks begin as Moscow’s authorities reported that nearly 100 drones had targeted the Russian capital last night, in one of the biggest drone attacks on the city since Russia’s full-scale invasion in 2022. Keep up with the talks here. US-Ukraine minerals deal: A major lithium project in Ukraine, backed by US mining company TechMet, could be the first project to benefit from the minerals deal that is close to being finalised.EU: The European Commission has proposed borrowing €150bn worth of loans against the EU budget for member states to spend on weapons.2. Former Philippines president Rodrigo Duterte has been detained under an arrest warrant issued by the International Criminal Court over a crackdown on drugs that resulted in the deaths of thousands of mostly poor Filipinos across the south-east Asian country. Duterte, who served as president from 2016 to 2022, oversaw a crackdown on illicit narcotics leading to the deaths of thousands of mostly poor Filipinos. Read the full report here.3. Argentina’s President Javier Milei has issued an executive decree preapproving a loan agreement from the IMF, signalling the imminent conclusion of a long-awaited deal that is essential to his economic plan. Milei said he needs fresh funds from the IMF, to which Argentina already owes more than $40bn, to replenish the central bank’s scant currency reserves.4. OpenAI has forged a near-$12bn contract with CoreWeave and will take a stake in the cloud computing provider, boosting the group ahead of its expected $35bn public listing. The ChatGPT maker has signed a five-year deal in which CoreWeave will supply computing power to train and run OpenAI’s artificial intelligence models, said two people with knowledge of the deal.5. President Donald Trump has said the arrest of a Columbia University graduate for taking part in pro-Palestinian protests was “the first of many to come”, stoking fears of a clampdown on free speech and campus-based activism across the country. Here’s more on the arrest. Today’s big read© FT montage/Getty ImagesThe UK’s two leading digital banks, Revolut and Monzo, are hoping to crack the US market as fintechs are once again attracting investment following a funding drought caused by rising interest rates. But the push across the Atlantic is no easy feat. Here’s why. We’re also reading and listening to . . . Chart of the daySome content could not load. Check your internet connection or browser settings.The US’s India trade deficit reached more than $45bn last year — less than half of the “almost $100bn” deficit Donald Trump claimed at the White House, but the 10th largest of America’s trade partners. Trump is pushing Indian prime minister Narendra Modi to lower tariffs. Trade experts say the talks promise to be fraught, especially when it comes to agriculture. Take a break from the news . . . The latest fashion shows in Milan and Paris suggest men’s clothing is going through something of a transformation from tight-fitting trousers and jackets to more roomy and baggy shapes — a shift welcomed by market columnist and sartorial correspondent Robert Armstrong. Giorgio Armani’s autumn/winter show at Milan Fashion Week in January 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. US stocks got taken out to the woodshed yesterday. The S&P 500 fell 2.7 per cent and the Nasdaq fell 4 per cent, its biggest one-day fall since 2022. A few things are clear. US growth and tariff policy are major concerns for investors at a moment when the country’s risk assets are very expensive. Inflation risks remain on the table. And the Trump administration’s “short-term pain, long-term gain” rhetoric about markets and the economy has scared everyone out of their trousers. Beyond that, it is hard to say much definitively. We try to find some order in the chaos below. If there are points we have missed, email us: robert.armstrong@ft.com and aiden.reiter@ft.com. Anatomy of a routWhen stock markets really panic, analysis can only take you so far. Logic fails and emotion takes control. That said, there are some patterns in yesterday’s rout which — if confirmed in the days to come — will tell us something about what is going on.Monday looked like a worse case of the same illness the market suffered from last week. Big tech was hardest hit, led by Tesla (15.4 per cent down), Microchip Technology (10.6 per cent) and Palantir (10.1 per cent). Even Apple, the most defensive of the Mag 7, which has held up relatively well over the past month, was off by almost 5 per cent. Banks were down hard, too, showing that investors are concerned about growth, and that the recent hopes that this would be a good year for trading, capital markets and deregulation have been dashed. Defensives did well overall, especially in healthcare and staples. Utilities finished the day up. On its face, this looks like a flight to safety, as investors rush to take profit in the stocks with the biggest gains over the past few years. But there are several aspects of the market action we still don’t quite understand.Why didn’t bonds rally more? The yield on the 10-year Treasury only fell 10 basis points. We would have expected more given the size of the move in equities. Was the rally restrained by fears of rising inflation? Perhaps not — break-even inflation was down a touch, and the term premium up a little.Also, why did some cheap cyclical stocks do OK? General Motors, Ford and 3M were all up at the end of the day, for example. Meanwhile, staples fortresses Walmart and Costco were well down. Their decline probably has more to do with people selling stocks where they have seen gains or were overweight — both Walmart and Costco have had great runs over the past year or two. But the growth scare figures in here, too.Today we will be watching for signs that we are seeing an adjustment rather than the start of a full-on bear market. Do investors buy the dip, and if they do, will the sellers rush back in? Tomorrow’s close will be particularly interesting in this respect. Signs of a bigger flight into bonds will be important, too. Severe contagion to international stock markets will tell us something about whether what we are seeing is the reversal of the overcrowded US trade or something much worse — a global flight from risk. And, like everyone else, we will be looking for any signal that the White House will moderate its policy approach in the face of market mayhem.Germany and EuropeAs US assets start to crack, Europe’s entire financial system may be changing fundamentally.Last week, Germany’s chancellor-in-waiting Friedrich Merz announced that his government would circumvent the country’s long-standing debt limits to boost defence and infrastructure spending by up to €500bn. Then the European Commission said that it would also push forward a €150bn defence funding loan scheme. Other plans are also being floated, including seizing Russia’s frozen assets and, most radically, issuing special defence Eurobonds. Bond yields have jumped and banks have upgraded their growth forecasts for the continent, and all of this has pushed the Euro higher against the dollar:At the same time as the fiscal chessboard has been rearranged, European stocks have performed strongly this year, even as US indices tumble. The fiscal boom and the equity rally appear to be closely linked. But they are not one and the same. Some points to bear in mind:The European rally: The shifting fiscal outlook has some investors seeing a secular growth story, with carry-over to the stock market. Though that may be true, Europe’s outperformance started a month before Germany’s big announcement. This has been more about rotation away from the US, says Thierry Wizman, chief FX strategist at Macquarie Group:European growth will do better overall than it otherwise would have, in light of the government spending. But unless that spending is directed broadly towards Europe’s private sector, it does not necessarily bode well for European stocks . . . higher sovereign bond yields will pressure multiples lower, and crowd out some private-sector led growth, especially if compounded by worries about sovereign debt rising too fast . . . What is happening in European stocks still feels like a rotation out of the US, rather than [being] supported by European fundamentals on their own merits.Some of the biggest moves in European shares are, indeed, tied to European defence and the secular growth narrative. Defence companies have carried the market for the past two weeks, and banks have done extremely well. But, zooming out, this is a wide rally, and it does not cut cleanly across defensives and cyclicals:Some content could not load. Check your internet connection or browser settings.The growth signal from bank stocks risks being overstated, too. Europe’s banking sector has been more or less left for dead since 2008. When a sector goes from “dead” to “mostly dead”, stocks move a lot, but this does not indicate an economic renaissance.In some regards, the reassessment of European equities is long overdue; they were probably a bit too cheap. But that does not mean that the bull run will be sustained, even if fiscal largesse nudges growth up. We still do not know, for example, how Trump’s tariff plans will affect European company profits.Growth hopes and the fiscal space: Though markets are excited about Germany’s change and what it portends for broader EU growth, it’s worth tempering expectations. We do not know how these fiscal packages will pay out. Just yesterday, the German Green party vowed to block Merz’s proposal (this might just be a negotiating tactic, though; as Nico FitzRoy at Signum Capital notes, there is reason to think the Greens will come around). There is also uncertainty about the EU’s plans. Though the EU does not need unanimous approval to push through the €150bn plan, more audacious plans — issuing a raft of new debt, or seizing Russian assets — would require full approval from the bloc. That invites pushback from countries more sympathetic to Russia, such as Hungary.For fiscal spending to translate into growth, countries need to be able to deploy that capital to the private sector, and spending needs to be able to spread from defence and infrastructure to the rest of the economy. While Germany definitely has the fiscal space, it might not actually be able to deploy its budget efficiently or in a timely manner, says James Athey at the Marlborough Group:Taking everything at face value, [Germany] is expected to spend an additional 1 to 2.5 percentage points of GDP per year. But detail is lacking on how shovel-ready proposed infrastructure projects are. And we do not know how constrained the defence industry is; there is a notion that there needs to be an expansion of defence capacity before [the fiscal spending] could go to work. Other countries would face the same issues, but with less fiscal space to play with. And they could have even less fiscal space going forward; it is possible that a flood of new issuance from Germany, or a tranche of Eurobonds, crowds out other sovereign debt. Spreads between the Bund and other European debt have narrowed since last week — but that could change once new Bund or Eurobond supply hits the market.(Reiter)One good readA warning, perhaps.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