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Good morning from the Financial Times.
Today is Tuesday, April 8th, and this is your FT News Briefing.
Markets have suffered another day of whiplash and oil prices were blinking red.
Meanwhile, companies are finding creative ways to cushion the blow from US tariffs.
They're called valuation strategies.
If you can lower the customs value, then the percentage tariff is going to come out to a lower number.
I'm Mark Filippino, and here's the news you need to start your day.
Wall Street took everyone for a ride yesterday on the back of tariffs issued by US President Donald Trump.
The S &P 500 swung all over the place.
At one point, the index was down as much as 4 % and briefly entered bear market territory.
Then it bounced back after there was a rumor that Trump was considering a pause on tariffs but the White House denied this.
And while investors were deciding what to do about equities, safe haven assets like gold and government bonds started to look shaky.
Ten -year US treasuries at one point saw the biggest daily increase in yields since 2022.
Now, midway through this roller coaster, Trump threatened to impose an additional 50 % tariff on China if Beijing didn't get rid of its own retaliatory measures.
All in all, the S &P finished the day down just a smidge.
All right, so we covered equities, now on to commodities.
Oil prices fell to 4 -year lows on Monday.
And a drop like that is often seen as an indicator that the global economy is headed for a sharp slowdown.
I'm joined now by the FT's Energy Reporter, Racheal Millard, to discuss.
Hi, Racheal. Hi, Mark.
So, why exactly were oil prices falling on Monday?
Oil prices fell on Monday after President Trump failed to walk back from any of his tariff plans over the weekend.
Traders had perhaps hoped that some of them might be weakened slightly in the face of the obvious poor market reaction on Friday, but, in fact, Donald Trump signaled that he was going to press ahead.
So Brent Crude fell to about $64 per barrel on Monday which represents a pretty significant slide and bearing in mind for most of 2022 oil was above $90 a barrel so it's been a pretty significant market shift over the past couple of years.
And if I understand this correctly it wasn't just tariff related right?
This fall in oil prices?
That's right yes, last week there was also a decision by the OPEC Plus coalition of oil producing countries which doesn't include the US to increase production.
And so you've got this combination of potentially weaker demand due to the tariffs and increase in supply due to OPEC increasing production, all creating this downward pressure on the oil price.
And what is this doing to oil majors?
I'm guessing that they've been hit too.
Indeed, oil majors have certainly taken a hit.
BP and Shell fell about 7 or 8 % in London yesterday outpacing the fall in the FTSE 100, ExxonMobil also fell in the US.
So they're certainly feeling the impact of this.
I think the broader question will be, depending on how long this oil price weakness carries on for, how will that affect their strategies?
BP recently came out with a big strategy reset, but a lot of it envisaged an oil price higher than where it was yesterday.
So, Rachel, earlier I had said that oil prices are associated with a recession.
Why is that and what are people saying on that front?
Oil price is clearly a very tag to global economic strength.
Oil is used in almost every imaginable modern product.
There have been a lot of analysts talking a huge amount about the impact of tariffs on global growth and therefore on the oil price.
In a note yesterday, for example, Morgan Stanley revised its forecast for Brent crude down to the low $60 a barrel, and they noted that the sorts of declines that we've seen in the oil market over the past week has only been seen 24 times before, and 22 of those were associated with recessions.
So there are a lot of analysts pointing out that the fall in the oil price reflects perceptions of a higher risk of recession.
JS Rachel Miller covers energy for the FT. Thanks Rachel.
LC Great to talk to you.
Thank you. JS Investors and economists think that tariffs will force the European Central Bank to cut rates not once, but twice in the next few months.
Investors are pricing in a 90 % chance that the ECB will lower rates by a quarter point when it meets next week, they're also feeling more confident that the same thing is going to happen in June.
Meanwhile, economists are worried about two big things here.
First, that Trump's trade policies could tip the EU into a recession, but second, that it might also create a demand shock.
The concern is that Chinese manufacturers will start dumping their products in Europe to avoid sky -high tariffs in the U .S., and that could have a disinflationary effect on block.
Inflation in the Eurozone fell to an annual 2 .2 percent in March. For as long as trade barriers have existed, people have tried to get around them.
This time is no different.
Consultants are now stepping in to offer companies some pretty creative workarounds to US President Donald Trump's latest round of tariffs.
My colleague I think Stephen Foley has been looking into all this.
Hey, Stephen. Hey, good morning.
So walk me through this.
What sort of maneuvers are consultants suggesting here?
They're called valuation strategies.
These are the ones that the consultants I've been speaking to over the last weeks and months have been most excited about talking to their clients.
Pretty simple. If you can lower the customs value, the amount that you record on a customs form that the import is worth, then the percentage tariff is gonna come out to a lower number.
Do you have any examples of what this could look like?
There's a couple of different ways to do it.
The rules allow a certain amount of optionality about how you pick the price at which you're describing your import.
One of the strategies is to use an earlier price in the supply chain, so cutting out some of the markups that the middlemen have been adding to the cost of the import.
That's one strategy that's very popular at the moment.
And another is also splitting out the fees that you're paying to the supplier.
So if you're a supplier of, say, a whiskey or a gin or something, you're sending that into the United States, the importer is paying a price for the drink.
But the company that they're buying it from also owns the brand and does advertising and marketing and promotions.
Well, if the importer can pay a smaller price for the drink itself and then pay a separate fee for marketing and promotion, you can strip out that marketing and promotion cost. You pay a smaller duty on the imported drink.
I see. And just out of curiosity, how much could tweaking the customs value of goods in this way end up saving a company?
Could it save them a considerable amount?
Oh yeah, these are all gonna add up over time.
But actually you can make some quite big savings.
I've seen numbers in excess of 20 to 25 percent for some of these strategies Still, you know, it does sound pretty complex could these attempts to circumvent tariffs imposed costs on companies in other ways It's complex for sure.
And that of course brings risk as well There are really quite well -established rules of the road for deciding what is a market price.
What is a fair price?
what is an accurate price for an import.
So you have to abide by those rules.
And of course, you can push them when there's optionality.
But customs will be looking very closely to make sure that you're not pushing them too far.
I've been wondering, Stephen, what does this ultimately tell you about Trump's tariff plan?
I mean, does this undercut what Trump is trying to do here with his tariffs, which is basically trying to bring American manufacturing back to American shores?
I think what it tells me is that business isn't ready to believe that these tariffs are going to stick yet.
If you talk to executives, they'll tell you that re -engineering your supply chain, moving supply from one country to another, those are big and permanent moves.
But of course, what we've seen from Donald Trump is that policies can be reversed or paused within days of being announced.
So I think companies are loath to make big and unchangeable decisions at this point.
These valuations strategies, however, that's something that you can do right now.
Steven Foley is the FT's accounting editor based in New York.
Thanks, Steven. Thanks for having me.
You can read more on all 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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