Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Eurozone inflation has fallen for the first time in four months to 2.4 per cent, underpinning European Central Bank rate-setters’ hopes that the recent uptick in price pressures is proving temporary. The February figure, down slightly from the 2.5 per cent rise in prices recorded for the year to January, was slightly worse than economists’ expectations of a fall to 2.3 per cent, according to a Reuters poll. However, two measures of underlying inflation also ticked down, which economists said would bolster the ECB’s confidence in lowering borrowing costs. Core inflation, a measure that excludes changes in food and energy prices, was down to 2.6 per cent in February, from 2.7 per cent — a level it has hovered at since September. Services inflation, a core gauge for domestic price pressures, also fell from 3.9 per cent to 3.7 per cent — the lowest level since April 2024. “The ECB will be relieved to see service price inflation finally easing,” said Diego Iscaro, head of European economics at S&P Global Market Intelligence, adding that he expected weak growth to drag down price pressures further over the coming months. Tomasz Wieladek, an economist at T Rowe Price, argued that despite sticky headline inflation, “the details are better than expected” and provide “the green light for further ECB cuts”.The central bank is set to meet later this week, with rate-setters expected to cut the benchmark deposit rate by a quarter-point to 2.5 per cent. The central bank targets inflation of 2 per cent over the medium term. It has cut interest rates five times since June amid expectations of weaker growth. The region is heavily exposed to tariffs on exports to the US, which US President Donald Trump is set to introduce in the coming weeks. While investors still expect two additional rate cuts by the end of the year, some are bracing for a temporary pause in April after hawkish rate-setters warned that the ECB should not “sleepwalk” into too many cuts.Vincent Stamer, economist at Commerzbank, said lower service price inflation should lead to further declines in core prices, adding that the expected ECB rate cuts were “not in danger”. The euro, which had already been strengthening on the day, was up 0.8 per cent at $1.046.Executive board member Isabel Schnabel said last month that inflation risks were increasingly becoming “skewed to the upside”, while borrowing costs had eased a lot. Schnabel told the Financial Times that the central bank should “now” start to debate a “pause or halt” to rate cuts. 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 the working week. Thanks to all my colleagues who covered for me last week while I took a break. Here’s what’s on the agenda for today: Ukraine peace talks latest An exclusive Deutsche Bank storyCrypto prices jumpThe triumph of Anora at the OscarsAnd Utah’s new members-only ski resortDifferences have emerged between Britain and France over a peace proposal for Ukraine as the European allies try to salvage a diplomatic process that was left in tatters following Friday’s disastrous meeting between Volodymyr Zelenskyy and the US president and vice-president in the Oval Office.European leaders met in London yesterday to discuss ways to “stop the fighting” in Ukraine and build a “coalition of the willing” to secure a ceasefire. French President Emmanuel Macron told the Le Figaro newspaper that he and British Prime Minister Keir Starmer had proposed an initial truce between Russia and Ukraine “in the air, at sea and on energy infrastructure” that would last one month.But UK officials later said the one-month truce was not “a UK plan” and that there were “various options on the table”. Zelenskyy also rejected calls for Ukraine to agree an immediate ceasefire.The French and British leaders are hoping a deal would involve US cover for European troops deployed to secure any ceasefire in Ukraine. Starmer said after Sunday’s summit that while Europe “must do the heavy lifting”, the “effort must have strong US backing”.The European plan would also see Zelenskyy signing a proposed deal to provide the US with a share of revenues from some of Ukraine’s mineral reserves, giving Washington an economic stake in a peace settlement. Trump had wanted Zelenskyy to sign the agreement in Washington on Friday but it was left unsigned after Trump ejected the Ukrainian president from the White House following their dispute in the Oval Office.Vladimir Putin’s spokesman today said western unity was falling apart after Friday’s extraordinary spat. Dmitry Peskov said the argument showed Ukraine’s leader “doesn’t want peace, he wants the war to continue”, according to Interfax. Here’s more on the diplomacy to rebuild relations between Europe and America.More on the war in Ukraine: Shares in European defence companies jumped at the start of trading today as investors bet governments across the continent would have to raise their military spending. Nord Stream 2: An ex-Stasi officer and close friend of Vladimir Putin has been talking to US investors about restarting a gas pipeline linking Russia and Europe. More on that Oval Office meeting: The relationship between Donald Trump and Volodymyr Zelenskyy has been damaged beyond repair, writes Ben Hall.And here’s what else we’re keeping tabs on today:Tariffs: Postponed US tariffs of 25 per cent on imports from Mexico and Canada are due to take effect from midnight but commerce secretary Howard Lutnick said yesterday the president was still deciding on the level. Markets: The euro and European defence stocks were the biggest gainers as trading got under way in Europe and Asia. US stocks were expected to open flat when trading resumes later on today. Economic data: S&P Global releases February Manufacturing Purchasing Managers’ Index data for Canada and the US. The Bank of Mexico releases the results of its poll of private sector analysts’ predictions for growth, inflation and exchange and interest rates. Monetary policy: Federal Reserve Bank of St Louis president Alberto Musalem speaks on the US economy and monetary policy at an event in Washington.Jes Staley: The former Barclays chief executive will begin to try and clear his name and overturn a lifetime ban at a trial starting in London. The FT has been given a copy of Staley’s opening statement. Five more top stories1. Exclusive: Deutsche Bank clashed with the European Central Bank throughout 2024 over concerns the German lender may be underestimating how many loans would sour, people familiar with the matter told the Financial Times. The ECB flagged concerns over Deutsche’s credit risk management and its risk models on multiple occasions last year. Olaf Storbeck and Florian Müller in Frankfurt have more details.2. Eurozone inflation has fallen for the first time in four months to 2.4 per cent. The February inflation number, which is down from 2.5 per cent in the year to January, will underpin European Central Bank rate-setters’ hopes that the recent uptick in price pressures is proving temporary. This is a developing story.3. Anora, an independent film about a brief, ill-fated romance between a sex worker and the son of a Russian oligarch, took home the Best Picture prize along with four others at the 97th Academy Awards last night. Mikey Madison beat favourite Demi Moore to the Best Actress award for her role in the low-budget movie about the sex worker community. Christopher Grimes in LA has more.4. Cryptocurrency prices jumped yesterday after Donald Trump named the tokens that would be included in a US strategic reserve, providing a jolt to an industry that has cosied up to the White House. Crypto traders believe something akin to Fort Knox for gold would offer legitimacy to the asset class. Here’s more on the tokens on Trump’s list.5. Mark Walter, the billionaire chief executive of Guggenheim Partners, and Thomas Tull, the former owner of Legendary Entertainment, have formed a $40bn holding company to make large bets on artificial intelligence. Here’s more on the billionaires’ new venture.Today’s Big Read The Chevrolet Silverado has been one of America’s most popular pick-up trucks since it was launched almost three decades ago. But the General Motors model, which costs roughly $40,000-$70,000, relies on one of the most complex, international and interconnected automotive supply chains, meaning the iconic vehicle could now become one of the biggest victims of Donald Trump’s trade war.We’re also reading . . . US Congress: America’s first branch of government should be acting as a check on Trump’s power grab, writes our editorial board. Instead, it has been missing in action.Premier League: Richard Masters, chief executive of the world’s most-watched football league, speaks to the FT on keeping the peace between its 20 ultra-competitive clubs.Nuclear energy: Countries want to squeeze more electricity from ageing power plants to help meet global demand, but the strategy has its own challenges.Management: Elon Musk isn’t the first boss to ask staff to list top five things at work, writes Pilita Clark, just the worst.Chart of the daySome content could not load. Check your internet connection or browser settings.Wall Street has raced ahead of international rivals over the past decade and a half. But a recent pullback in tech shares has underlined the growing nervousness around soaring valuations in a market that has swallowed an ever larger share of global investors’ allocations. Stephanie Stacey and Mari Novik look back at the rise of the US stock market and assess the concentration risks worrying investors. Take a break from the news . . . Reed Hastings, the billionaire founder of Netflix, has created a members-only ski resort on Utah’s Powder Mountain. He is walking a gentrification tightrope — and a ski industry in flux is watching every step.Some of the homes at Powder Haven, the resort’s private enclave More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.There are some things in global finance which you really shouldn’t look at too closely if you value your sanity. Repo and money markets would definitely be one. But even the banking system’s funding arrangements are benign compared to the Lovecraftian horror of their IT outsourcing, because there’s no central bank to guarantee a happy ending. As one senior bank supervisor put it a few years ago, there is no such thing as a database provider of last resort.In other words, Hell is empty, and all the demons are in the ECB Outsourcing Register. The annual “horizontal review” from the ECB’s Banking Supervision committee was published last week. Do you want to know what proportion of “critical functions” are not compliant with basic regulatory guidelines? It’s just under 10 per cent. The average number of “critical” service providers per large bank? Fifty-eight per cent. What’s the average number of subcontractors on the average banking industry outsourcing contract? Four and a bit. What proportion of critical outsourcing providers would be “easy” to replace in the event of a problem? Just 17.7 per cent, although the good news is that the proportion which would be “impossible” to replace is now 8.6 per cent — the remainder are apparently “difficult”.© ECBWhatever the opposite of “setting your mind at rest” might be, that’s what it does to consider the extent to which the European banking system (and it’s unlikely that the US or UK are any better) relies on a complicated web of supply chains for software-as-a-service, offsite data centres and other euphemisms for “other people’s computers”. It’s all driven by the growth of cloud computing, of course — cloud now makes up more than a fifth of the total, having grown 13.5 per cent in the last year (and the ECB’s report is based mainly on data as of the end of 2023, so it is likely to be even more important now).© ECBThe growing role of cloud contracts has meant that European banks are, more than ever, dependent not only on a small number of outsourcing providers (30 firms account for half the total spend), but on non-EU firms. Within these top-30 firms, slightly more than 50 per cent of contracts are with companies whose ultimate parent is a US corporation.© ECBWhich raises a bit of an issue for Europe, as it starts to worry about strategic independence in a world of heightened geopolitical tension. As Henry Farrell and Abe Newman pointed out in their book Underground Empire, the US controls a number of systems of “weaponised interdependence”, of which two of the most important are the global dollar banking system and the internet. However, it seems that the interaction of finance and distributed computing might have created a third; the Euro area banking system (including the payment rails over which any future central bank digital currency will have to run) is highly dependent on server farms which might be physically located in Europe, but whose owners might ultimately answer to a foreign power.If you’re looking for a crumb of comfort, it might be that the regulatory definition of a “critical function” in this context is quite expansive; it doesn’t necessarily mean that an executive order could switch off the whole European financial system. But the trouble with the system as it’s currently set up is that it’s practically impossible to say anything about the true level of risk with any degree of confidence.(* Editorial note to pedants: the FT style guide says data is singular.) More

Euro zone inflation eased to 2.4% in February according to statistic agency Eurostat.
This was lower than January’s 2.5% reading, but higher than expected by economists polled by Reuters.
So-called core inflation, which strips out energy, food, alcohol and tobacco costs, came in at 2.6% in February, also lower than January’s print.

Two parents and their two children walk through a section of sweet cakes, biscuits and jam.
Nicolas Guyonnet | Afp | Getty Images

Euro zone inflation eased to 2.4% in February but came in slightly above analyst expectations, according to flash data from statistics agency Eurostat out on Monday.
Economists surveyed by Reuters had expected inflation to dip to 2.3% in February, down from the 2.5% reading of January.

So-called core inflation, which strips out energy, food, alcohol and tobacco costs, hit 2.6% in February, just below the 2.7% print of the previous month.
The closely watched services inflation reading, which has proven sticky over recent months, also eased, coming in at 3.7% last month, compared to the January reading of 3.9%.
The Monday figures also pointed to a sharp slowdown in energy price hikes, which were up just 0.2% in February, versus 1.9% in the first month of the year.
“February’s decline in headline inflation was encouraging because it was partly due to lower services inflation,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note on Monday.
“We think February’s decline in services inflation is the start of a trend that will pull the core rate down substantially this year,” he added.

Headline inflation is meanwhile expected to remain around its current levels, Allen-Reynolds noted, as energy prices are expected to rise slightly and food inflation is forecast to stay above the 2% mark.
However, depending on how the current geopolitical situation develops, this could eventually impact inflation, Bert Colijn, chief Netherlands economist at ING, noted Monday.
“Geopolitical developments are making the inflation outlook highly uncertain at the moment. Think, for example, of uncertainty surrounding a trade war and energy prices,” he said.
Repeated threats from U.S. President Donald Trump to impose tariffs on goods imported from Europe have left investors and economists unsure about the outlook for inflation and economic growth. Tariffs are often seen as inflationary, and trade with the U.S. is a key pillar for several major European countries, especially the EU’s largest economy, Germany.
Euro zone inflation re-accelerated in the fourth quarter, but European Central Bank policymakers remain optimistic about its trajectory. Accounts from the central bank’s January meeting last week showed that policymakers believed inflation was on its way to meeting the 2% target, despite some lingering concerns.
The ECB meets again later this week and is widely expected to announce another interest cut, which would mark its sixth reduction since it started easing monetary policy back in June.
Markets will also pay close attention to the ECB statement accompanying the rate decision, searching for clues on policymakers’ assessment of inflation and monetary policy restrictions.
“For the European Central Bank, the big question is how low it will go,” ING’s Colijn said, adding that the Monday data will support the view that inflation is currently “fairly benign,” but that it will not provide a strong basis for how low rates should be.
“We expect another 0.25ppt cut later this week to be accompanied by a fiercer debate on when the ECB will reach its terminal rate,” he said.
The Monday data comes after several major economies within the euro zone reported inflation data last week. Provisional data showed that February inflation was unchanged at a higher-than-expected 2.8% in Germany, but eased sharply to 0.9% in France. The readings are harmonized across the euro zone to ensure comparability. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Singapore has charged three men in a case suspected to involve Nvidia semiconductor sales that potentially breach US export controls, the government announced on Monday.The two Singaporeans and one Chinese national were charged last Thursday with fraud, after the government received a tip-off that servers containing the chips were being exported to Malaysia.“We assess that the servers may contain Nvidia chips,” home affairs minister K Shanmugam told a press briefing. “We will not tolerate individuals and companies violating our laws or taking advantage of their association with Singapore to circumvent export controls of other countries,” he added.Singapore’s role in the global supply chain of semiconductors has come under scrutiny in recent weeks, with US politicians raising questions about the potential leakage of restricted chips into China.Nvidia generated nearly a quarter of its sales through its Singapore office in the third quarter of 2024, making it the second-largest market after the US. But the company has said that almost all of this is invoicing other international companies through Singapore, with very few chips actually passing through the city-state.The fraud case relates to the sale of Dell and Supermicro servers imported from the US and then sold to a company in Malaysia.“The question is whether Malaysia was a final destination or from Malaysia it went to somewhere else, which we do not know for certain at this point,” said Shanmugam, adding that the Singaporean government had asked the US and Malaysia for assistance in its investigation.The three men were among nine people arrested last Wednesday as part of raids on 22 locations across Singapore, in which documents and electronic records were also seized. If convicted, they face up to 20 years in prison.Two of the individuals — Alan Wei Zhaolun, 48, and Aaron Woon Guo Jie, 40 — work at a company called Aperia Cloud Services as chief executive and chief operating officer, respectively.A 51-year-old Chinese national named Li Miang is accused of fraudulently claiming the end user of the items for which he was buying was a company called Luxuriate Your Life, a Singaporean computer equipment sales company.Their case has been adjourned until Friday. Neither Aperia nor Luxuriate Your Life responded to requests for comment about the case.On its website, Aperia said that “as Nvidia’s first qualified Nvidia Cloud Partner in south-east Asia”, it is “uniquely positioned with priority access to the highest performing [graphics processing units] available in the market”.The US government has been tightening restrictions in recent months on advanced semiconductors from American companies being exported to China.Separately, the EU last week imposed sanctions on a Singaporean chip distributor as part of its crackdown on companies helping Russia advance its defence and security sector.Splendent Technologies was one of 43 companies added to the EU’s list of entities under sanctions on the third anniversary of Russia’s invasion of Ukraine.The company did not respond to a request for comment, but added a message to its website saying that trading with Russia had been suspended.It is the second Singaporean company to be put under sanctions by the EU in relation to the Ukraine war, following the inclusion of a manufacturer of night-vision goggles in 2023. 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. The big market news over the weekend, if you want to call it that, was a Trump social media post reaffirming the president’s commitment to a strategic cryptocurrency reserve, which sent crypto prices flying. The idea is so stupid and wrong that Unhedged will not dignify it with comment. Email me about something else: robert.armstrong@ft.com.The ‘it’s all Trump’s fault’ narrative Unhedged wrote last week about the “vibe shift”: a set of sentiment readings, market leadership changes, and weak economic data that together suggest that something fundamental has changed in markets and the economy, and not for the better. The consensus view is that the vibe shift has been caused by the Trump administration. That the market narrative would coalesce around this idea makes psychological sense. Trump’s move-fast-and-break-things policy agenda has dominated the news while the vibe shift has unfolded; it is natural to draw a causal link between the two. We should be careful, though. The easiest market narrative isn’t always the right one, and focusing too much on the policy backdrop, however revolutionary, can obscure other parts of the picture. The charge sheet against the administration has three basic parts:Policy uncertainty and policy sequencing are crushing sentiment. Recent sentiment survey results from the University of Michigan and the Conference Board showed notable declines, and respondents to both surveys singled out tariff policy and inflation as causes of concern. Analysts have also pointed to the Baker, Bloom, Davis index of economic policy uncertainty as evidence that the administration’s abrupt and aggressive approach to policy is wrecking the mood. The BDM index tracks media coverage, impending changes in tax policy, and the dispersion of economic forecasts. It has only ever been higher at the start of the Covid pandemic:Part of the problem is that, in a reversal of the first Trump administration, market-unfriendly tariff and immigration polices have been the early priority, while market-friendly tax cuts and deregulation have been deferred. Here is Pimco economist Tiffany Wilding:We think the initial reactions in the markets [to Trump’s election] — similar to those seen in the sentiment surveys — likely reflect greater focus on expected pro-growth policies, such as the potential for more near-term tax cuts and deregulation. However, the announcements since Trump’s inauguration have been more focused on potentially disruptive trade and immigration policy actions and steeper cuts in government services . . . Markets might be catching on to the shifting balance of risksOne bond manager summed it up more concisely: “The backdrop is becoming increasingly simple: most of the policy actions and proposals out of Washington are growth negative.” Sentiment is weighing on activity. The latest (but hardly the only) evidence of an economic slowdown came on Friday, when the government’s personal consumption expenditure report showed inflation-adjusted consumer spending falling by 0.5 per cent in January, led down by durable goods and especially cars. Services spending softened, too, while the savings rate rose. It’s the worst reading in since 2021:Here is Barclays economist Christian Keller:High uncertainty about tariffs, DOGE, budget deficits and a Ukraine peace deal has started to weigh on US activity . . . Indeed, the recent data suggest policy is already having negative spillovers . . . spending and trade data and expectations for an additional drag from uncertainty lead us to revise down our GDP forecasts for Q1 (-1.0pp) and Q2 (-0.5pp) to 1.5 per cent q/q . . . we still think that this amounts to more of a slowdown than a recession, but it is a significant deceleration from the growth rates of the past two years.The view that we are seeing an policy uncertainty-driven slowdown fits with what we have seen in the bond market. Since Treasury yields peaked in January, their decline is almost all down to falling real rates — which are linked to growth — rather than to declines in inflation expectations:Finally, uncertainty may weigh on investment, which would decrease longer-term growth. Torsten Slok of Apollo has gathered a range of Fed surveys of companies’ capital expenditure plans. All have been rising for a few years, but all ticked down in February:Slok argues that “DOGE and tariffs combined are a mild temporary shock to the economy that will put modest upward pressure on inflation and modest downward pressure on GDP.”The “it’s Trump’s fault” hypothesis is logical in broad outline but might easily be taken too far. Trump’s most important trait is his ability to make people emotional, and in markets coolness is all. So here are four points to keep in mind:The economy has been running above its trend growth rate, and a slowdown is no surprise. The US is not, in the long run, a 2.5-3 per cent real growth economy, but that is what we have had for the last few years. Perhaps Trump policies made the step down to a more realistic 1-2 per cent growth come sooner, but this was coming, especially with the Fed’s policy rate parked at 4.5 per cent.  One month is just one month (especially in January). Economic data is lumpy. Cold weather and fires probably has something to do with the latest spending figures. And weird stuff happens in January for whatever reason (look at January 2024 and 2023 in the PCE chart above). Even if the market is responding to the policy onslaught, what is happening looks like the reversal of the overhyped Trump trades of late last year, rather than something deeper. The round trip taken by small cap stocks — darlings of the “Trump will boost domestic growth” notion — exemplifies this:Finally, it’s worth remembering that the biggest sea-change in the market — the recent underperformance of the Magnificent 7 big tech stocks — does not look like a response to Trump policy noise. If anything, one would think an uncertain policy backdrop would make these stocks more appealing, given that their growth is not driven by the economic cycle. Instead, their relative decline looks like a natural correction after an wild bull run, and the Mag 7 are not the only part of the market that has come to look overextended. There is a bigger question in markets than Trump: can US risk assets return to something resembling normalcy after several years of astonishing post-pandemic exuberance?Trump is an attention-attracting machine. But attributing too much of what is going on in markets and the economy to the administration would be a mistake.One good readA basic blue suit.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. 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