Good morning from the Financial Times.
Today is Monday, February 24th, and this is your FT News Briefing.
Germany's center -right came out on top in yesterday's election, and all the political uncertainty in the U .S.
is starting to take a toll on Wall Street.
Plus, we'll take a look at how Beijing is getting creative at hiding its U .S.
Treasury holdings. I'm Kasia Broussalyan and here's the news you need to start your day.
Germany's Christian Democratic Union, or the CDU, won the most votes in yesterday's federal elections.
Early results showed the center -right party winning just below 30 percent of the ballots.
That means the CDU's leader Friedrich Merz is set to become Germany's next chancellor, but he'll need to team up with at least one other party for a working majority.
Merz has said he won't govern with the number two party.
The far -right Alternative for Deutschland, or AFD, had its best night ever, came in with about 20 percent of the vote.
Instead, Merz will probably look to the center -left Social Democrats, who finished third.
U .S. stocks had their worst day in two months on Friday.
It came on the back of some pretty gloomy economic data.
And the move cuts into the perceptions that Wall Street has been doing great ever since Donald Trump won the presidential election.
Here to explain what's going on is the FT's Jennifer Hughes.
Hey, Jen. Hey there.
All right. So give me the rundown on the numbers here.
What sort of decline are we seeing among U .S.
equities? So Friday, we saw the S &P down 1 .7 percent.
That's the biggest decline in two months.
We are still up for the year.
We did have a record high earlier last week.
So we're still near those kind of high levels.
But we haven't been going very far in recent weeks.
So this perception, as we said, of a sort of a Trump rally, since the inauguration, the S &P is up 0 .2%.
Yeah, so that's not like a huge jump.
But I guess what's behind this most recent slump?
Which economic indicators are making investors jittery?
It's really consumer sentiment and inflation figures.
These are the things we're worrying about most at the moment.
So inflation, we had stronger numbers for January than we thought we would.
We'd had a, we call it a cautious outlook from Walmart.
Then we had existing home sales data, which showed a fall in existing home sales, people who just can't really afford to move because rates are so high.
And we also saw this big drop in another sentiment indicator.
So this kind of suggests that the consumer might be reaching the end of the tether.
And that's something that would really worry people looking for growth.
Well, that's interesting because, you know, we've talked a lot on the show about how the Trump bump has really boosted markets ever since the election.
So I guess to what extent is this slump also maybe Trump -induced now?
So far, I'd call it more of a Trump slide or Trump hesitation in the markets.
We're looking at this barrage of executive orders and policies and plans and all sorts of actions that are going on, but we're not quite sure what's going to come out of it.
For example, tariffs is a classic one for stocks, because if you have a tariff, then we can start calculating what it might do to a certain company's profits, depending on the supply chain.
But we don't know at the moment.
Everything is still likely to happen, possibly going to happen, might get negotiated.
It's very hard for investors to make decisions on this.
All this uncertainty sort of adds up to a Wall Street on hold at the moment.
So I call it a Trump hesitation, although that doesn't sound quite as good as a Trump slump.
And as we know, markets hate uncertainty.
So I guess, what should we expect in the week ahead?
Today should be interesting.
We've had this pattern in recent months, well, recent years, frankly, of having a market wobble like we did on Friday, and then we get this surge of people buying on the dip.
This is an opportunity to buy their favorite company a bit more cheaply.
So if we see more of that, then we know that there's still a lot of goodwill towards the market and a chance of more buying.
If we do see a further sell -off, we might be in for a deeper correction.
There'll be lots of people who say that's long overdue, but it could be a bit of a shock for people.
Jennifer Hughes is the FT's U .S.
Markets Editor. Thanks, Jen.
Thank you. India and the U .K.
are relaunching negotiations today on a new trade deal.
officials are meeting in New Delhi for two days of long -awaited talks they first started back in 2022 but stalled out last year while both countries held elections the hope now is that any agreement would kickstart investment especially in sectors like advanced manufacturing clean energy and financial
services a lot of the major details for a future deal have actually already been ironed out but there are some sticking points among other things New Delhi wants the UK to give its short -term workers visas.
China isn't holding as many U .S.
Treasury bonds as it used to.
In fact, investors there have cut back to levels last seen in 2009.
For years now, Beijing has been trying to diversify its assets.
But its trend could also be a bit of a Jedi mind trick.
My colleague Arjun Neil Alem has been looking into what's going on.
Hey, Arjun. Hey, thanks for having me on.
Yeah, thanks for being here.
So before we unpack my Star Wars reference, can you just give me a bit of background on China's relationship with U .S.
Treasuries? I mean, how big of a player has the country been in this space?
The basic story over the last 25 years has been that China has sold more to the U .S.
than it's bought. That's left it with a store of dollars that it needs to put somewhere.
It's traditionally put those in U .S.
treasury bonds, basically U .S.
debt. China has been one of the two largest sovereign holders of treasury bonds, along with Japan.
Now, China, over the last 10 years or so, has been actively moving to reduce its treasury holdings.
I think since 2011, it's reduced the total value of its treasury holdings by more than half a trillion U .S.
dollars. Got it. So back to my Jedi comment.
Can you explain how exactly China has been dumping these treasury bonds?
Well, you've got to take the numbers with a pinch of salt.
China is still holding a lot of treasuries.
It couldn't sell down its treasuries in a large way very quickly unless it wanted to tank the price and lose money itself.
So it's not like it's getting out of the treasury market.
But China's financial authorities prefer to operate in the dark.
What that means is China has been transferring some of its treasury holdings to other accounts held in other countries like Belgium or Luxembourg.
So these will show up as Belgian holdings or holdings in Luxembourg, which don't directly show up as Chinese holdings of U .S.
treasuries. But I guess why has China been trying to limit its exposure?
So analysts told us that China made a policy decision around 2010.
Tensions between the US and China were starting to grow and it became clearer that the US and China were in an economic competition.
And so if you are one of the largest holders of the sovereign debt of your biggest economic and geopolitical rival, it's not a good look and it might leave you at risk.
Right. And China kind of sat up at this point and realized that holding so much US debt probably wasn't a great strategy anymore?
Yeah, it is the intersection of geopolitics and finance.
Like China's purchases of U .S.
treasury bonds, i .e.
allowing the U .S. to have cheap debt in order to buy Chinese goods is like the core of global finance.
And the fact that that number is going down either shows that China is trying to decouple from the U .S.
financial system or it shows that China is trying to hide the true extent of its treasury holdings.
And that's very interesting.
OK, so China is getting rid of some of its U .S.
Treasury holdings, but it's also kind of just hiding some of what it owns.
So how big of a deal are China's moves here?
On a global level, this is a big deal.
The yield on U .S. Treasuries forms what we call the risk -free rate, which is the benchmark against which trillions of dollars of other assets are compared.
If China is getting out of the Treasury market even marginally, this could reduce demand for Treasuries and hence push up yields.
which in turn, it will make U .S.
debt more expensive.
This poses a challenge to future U .S.
governments that want to spend more than they earn.
Arjun Neil Aleem is the FT's Asia Markets correspondent.
Thanks, Arjun. Thanks again.
And finally, if you're heading to a friend's house in Brazil, don't expect them to serve any coffee.
Videos have gone viral on social media.
They're showing people hiding cups of joe as soon as the doorbell rings.
And that hoarding is due to sky -high coffee prices.
In Brazil, which is the world's biggest producer, it's up 40 percent from last year.
And under -caffeinated Brazilians aren't happy about it.
The increasing cost of the brew has become a symbol of wider frustration over inflation.
Now, that could spell trouble for President Lula da Silva.
He's up for re -election next year.
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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