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Good morning from the Financial Times. Today is Thursday, April 17th, and this is your FT News Briefing. Donald Trump's tariffs are complicating the Federal Reserve's dual mandate. And his trade policies aren't doing great things for the chip industry either. But you know who's coming off pretty well in all of this? Emerging markets, especially when you compare them to U.S. stocks.
It's interesting that the broader index is outperforming the S&P 500, which we would not have expected going into with a big tariff reveal. I'm Kasia Bersalian, and here's the news you need to start your day. So about the Fed's dual mandate, the U.S. Central Bank has two goals, keep inflation around 2 percent and maximize employment levels. Well, Fed Chair Jay Powell said yesterday that tariffs are making it difficult to meet both.
During a speech in Chicago, he warned that just like Donald Trump's levies were larger than expected, the same could end up being true about their economic effects. For one, we could see a return of higher inflation. That would put the U.S. Central Bank between a rock and a hard place. It could raise interest rates to bring down prices, but that would risk an economic slowdown, which would end up costing people their jobs.
U.S. stocks continued to slide as the Fed chair spoke. The S&P 500 closed down a little more than 2%. So we've been saying that these tariffs aren't leaving a ton of bright spots in equity. But sometimes there's light when you least expect it. Emerging markets are doing unexpectedly well right now. Here to explain why is the FT's Aiden Ryder. He co-authors our unhedged newsletter. Hey, Aiden. Doing well, thanks. So tell me what's going on in emerging markets right now. How well are they doing?
Yeah, so the MSCI Emerging Markets Index subtracting China, which is kind of the gold standard of emerging market indices, has actually outperformed the S&P 500. since Trump hit the world with tariffs on Liberation Day. We should note that emerging markets is a very broad term, and inside that index are countries like Saudi Arabia. or Taiwan, and also really impoverished countries like Malawi or Nigeria. So it's a pretty wide range, and not every country in the index is doing particularly well.
You have some countries like India who might benefit from some of the tensions between US and China. And they also have countries like Saudi Arabia that have been hurt by low oil prices. But overall, it's interesting that the broader index is outperforming the S&P 500, which we would not have expected going into the big tariff reveal. Yeah, well, explain that a little bit more. I mean, why is this so unexpected?
Well, there was a lot of softness kind of baked into emerging market equities before this. Institutional investor surveys suggest that there were big outflows in March as people were getting ready for Liberation Day. And one would expect that a lot of smaller countries who are being hit by tariff...
would be hurt by a big change in global regime, right? Emerging market assets tend to be risky assets. So if there's a big risk-off event or big risk sentiment in the air, people don't really want to invest in emerging markets. And what are the factors now driving their relatively high performance? Yeah, it's hard to say if it's really high performance among emerging markets or just really bad performance in the United States.
So the US has taken a lot of hits. That could be because people are trying to get out of US assets, or it could just be people locking in their gains from years of US outperformance. It's hard to say if this is really a big global shift. But what is interesting is we had expected tariffs to raise the dollar. And a stronger dollar tends to hurt emerging markets because it makes it more expensive for them to service their debt or pay for their own imports.
But interestingly, the dollar has fallen, and that has actually been a boon to emerging markets. On top of that, there's been a lot of other stressors in the United States that have Things like high yield credit, which is a pretty good corollary for riskier bonds in emerging markets, perform particularly badly. Whereas emerging market bonds have actually done decently well, or at least have not done as poorly as fixed income in the US.
And we've talked on the show before that the dollar is weakening at the moment because there is some question potentially over safe haven assets and the dollar as one of those safe haven assets traditionally, right? Yeah, it's hard to say, but to some that might suggest that people are really trying to get out of U.S. assets and don't want to be holding dollars anymore.
Well, I guess that makes me wonder, you had mentioned that emerging markets are traditionally kind of a more risky bet for investors. Are they now a place of safety? Again, it depends on the emerging market. It's a pretty wide range of things, right? I would say Taiwan's probably a decent investment, whereas some other countries are not. But I think the point is, it's not that emerging markets are such a great investment. They are also down since Liberation Day en masse.
But there are a bunch of opportunities within emerging markets that might be able to exploit some of the shifting trade relationships between the US and China. Brazil, various countries, there are some bright spots. And overall, emerging markets have tended to fare better since Liberation Day than the United States. That's the FT's Aidan Ryder. Thanks, Aidan. Thanks, Kasia. UK inflation fell more than expected in March. It's now down to 2.6%. Back in February, it was 2.8%.
The biggest factors in the drop were lower prices for things like gas, games, and toys. And there's also some good news about services and food. It looks like price increases are easing up there, too. The figures make a good case for the Bank of England to lower interest rates when it meets next month.
Traders are betting on at least three quarter point cuts by the end of the year. But, and now there's always a but, economists are warning about the long-term outlook for inflation. It all really depends on how Donald Trump's global trade war develops. The chip-making world is trying to steady itself after a few earthquakes.
NVIDIA now has to jump higher hurdles to sell its chips to China. That sent shares falling. Meanwhile, ASML out of the Netherlands has reported some rough numbers of its own. which begs the question, have we reached peak chip? The FT's head of Lex, John Foley, is here to talk about it. Hey, John. Hey. Yeah, so just break down the major news that we've heard from some of these chip giants lately. What's going on?
So there are two things going on at the moment with chips. One is the chaos around tariffs. that we've been following for the last couple of weeks. The other is a kind of broader political issue, which is that the US is trying to make sure that it doesn't lose its position as top dog in AI. And that means making sure that companies don't sell.
to China, components and chips that might help China to get and take the lead. So in the last couple of days, we've seen two really big corporate developments. One is that NVIDIA, which is the go-to chip maker for AI. said that it's received notification from the US government that it might not be able to sell certain chips. into China, or at least not as easily. So NVIDIA is taking a $5.5 billion hit. Now, separately, ASML, which makes machines that basically etch chips, like super high-end...
equipment for making microchips for the AI industry, has reported its quarterly earnings. And it said that orders from customers for this quarter were much lower than analysts expected. All right, so two major giants in the chipmaking world. They're struggling a little bit for the two reasons that you mentioned. And just remind me, John, why is this industry such a big deal and worth paying attention to in the first place?
This industry is big because without it, we don't get this AI boom that is supposedly going to change the way we do everything, revolutionise economies. add multiple tens of billions, if not trillions, to global GDP. And so everyone wants to be... at the front of that wave, I guess. And the companies that lead are going to dominate the world, so the thinking goes.
As well as that, also AI is creating a lot of wealth in the stock market. It's pushed up the prices of all kinds of companies. NVIDIA is the obvious one. You know, NVIDIA is now worth $2.6 trillion and none of us had really heard of it.
not that many years ago. So these things are really high stakes, both on the way up and also on the way down. Yeah, I mean, NVIDIA has basically become like this market darling recently. So what are analysts and investors saying about the general outlook for chip companies?
I think the sense is that the outlook is still pretty good. We're very concerned about tariffs because we just don't really know what the impact of those is going to be. If you take a company like ASML, it makes these giant machines. But in a world where you've got tariffs on everything, these products ping pong backwards and forwards and collect tariffs.
in every direction until the products are just so expensive that no one can afford them anymore. On the other hand, there's this long-term question about how much AI do we really need? At the end of the day, will consumers, will we, households, and the companies that employ us pay AI companies as much as they think they will to get access to these services.
I'm not yet seeing a massive change in analysts' views on that long-term question of how important and how profitable AI is going to be. At the moment, this is a kind of period of uncertainty while everyone tries to work out where on the board the chess pieces are going to end up.
And while we're in this period of uncertainty, plus the importance of companies like NVIDIA on the wider stock market, I guess I'm wondering what are some of the wider market implications if the industry continues to falter?
Well, there's a direct impact, right? Because these high-tech companies, what we call the Magnificent Seven, make up around a third of the S&P's value. So obviously, if they fall dramatically, the S&P falls dramatically. So we're sort of still waiting to see how nervous investors are going to be about this.
But I'm almost certain that at some point there will be a correction in expectations of how quickly demand will grow for chips. I don't think that correction has come yet, but I would imagine it's not too far away. John Foley heads up the Lex Column for the FT. Thanks, John. Thanks for having me. You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
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