This is an audio transcript of the FT News Briefing podcast episode: ‘Uncertainty reigns in US markets’
Marc Filippino
Good morning from the Financial Times. Today is Friday, April 11th, and this is your FT News Briefing.
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US stocks lost their sugar rush yesterday. Meanwhile, there seems to be at least one company riding out the trade storm. Plus, Indonesia has one of the biggest new sovereign wealth funds, but what happens if it gets mismanaged? I’m Marc Filippino, and here’s the news you need to start your day.
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US stocks lost their buzz after having their best day in nearly two decades. The S&P 500 fell 3.5 per cent on Thursday. And that’s despite Donald Trump implementing a 90-day pause on tariffs and a pretty encouraging inflation report that came out yesterday. Here to help me unpack all this is the FT’s US markets editor, Kate Duguid. Hey, Kate.
Kate Duguid
Hey.
Marc Filippino
So Kate, first, the inflation report. The consumer price index fell more than expected to 2.4 per cent. Usually, that tells markets, hey, the Federal Reserve might be closer to cutting interest rates, which they love. Why the sell-off then?
Kate Duguid
The market wasn’t particularly excited about this because the data is stale. It doesn’t capture anything that has happened with tariffs in the past week or so. So markets are really kind of looking through this good inflation print and thinking, OK, it seems like we’re going to have a bunch of inflationary policies coming in pretty soon. And that is more important than sort of backwards-looking data about inflation. And this is despite the fact that we have this pause on tariffs, right? We still have huge tariffs on China. There still is a blanket 10 per cent tariff across sort of trading partners. And so markets are looking at this and thinking tariffs are higher than they were a week ago, that will be inflationary. March’s inflation data really doesn’t tell us very much.
Marc Filippino
One big thing that we should mention that we’ve talked about a lot about on the show is the strength of the dollar. Where are we at now?
Kate Duguid
The dollar has continued to get smoked. People are selling the dollar. So I think that there’s a big theme here, which is that the US is reconsidering its place at the centre of the global financial system. The dollar is the world’s reserve currency. It remains a world reserve currency, but given that the US is sort of pulling back and disrupting these long-standing trade agreements, investors are questioning whether or not the dollar will continue to have the primacy that it has always had. And so the era of King Dollar may be coming to a close.
Marc Filippino
On that note, of the US kind of reconsidering its place in the global economy, there was a big sell-off in US Treasuries starting basically a week ago today, which is weird because when stocks sell off, people usually pile into safe havens like US Treasuries. How are those safe haven’s doing?
Kate Duguid
US safe havens have not benefited in this crisis. Part of it has been investors selling everything. You know, this is a sell-everything trade and moving into cash, in part to meet liquidity requirements. But this is part of the same theme about investors moving away from the United States, moving away from US assets. The confidence that people once had is maybe starting to be eroded a little bit.
Marc Filippino
So Kate, I guess what’s the big picture takeaway here from all this? Does anything particularly stick out to you?
Kate Duguid
To me, there is pretty good evidence that Donald Trump capitulated to the bond market. Stocks had been selling off for a little bit. The administration did not really react to that. You know, there was a lot of talk about a detox. There was talk about Main Street over Wall Street. But once Treasuries really started to sell off, once the panic extended to the Treasury market, that is when the administration started paying attention. So while we have a certain amount of relief, after the announcement made on Wednesday, I think that markets are still unsettled because this seems like it could be an episodic thing. We still are expecting to see inflation and there are still a number of trade agreements to be hammered out. So it’s kind of unclear what comes next.
Marc Filippino
That’s the FT’s Kate Duguid. Thanks, Kate.
Kate Duguid
Thank you.
Marc Filippino
Now we’ve mentioned on the show how the auto industry is particularly exposed to Donald Trump’s tariffs. It hasn’t been a quiet spring for anyone except for maybe Renault. The small French carmaker is fairly well insulated from all the chaos. Renault has recently restructured and it’s kept a smaller geographical footprint. The company doesn’t sell its vehicles in the United States, which means it doesn’t get hit with the 25 per cent tariffs that its competitors face. So that’s the good news for Renault. But if there is a major global downturn, even it will feel the pain.
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Indonesia is setting up a sovereign wealth fund. In doing so, it will take control of all the country’s state-owned enterprises. This $900bn megafund is called Danantara and it will be one of the world’s biggest sovereign wealth funds. But there are some concerns about what could happen to the Indonesian economy if the fund is mismanaged.
Here to explain is the FT’s Asia editor Robin Harding. Hey, Robin.
Robin Harding
Hi there.
Marc Filippino
So let’s start at the beginning. Robin, tell me a little bit about the idea behind Danantara.
Robin Harding
Danantara is the initiative of Indonesia’s relatively new president, Prabowo Subianto, and the idea is that all of Indonesia state-owned enterprises, and there’s quite a few of them, are going to be transferred to this fund. Danantara will reinvest the dividends from these companies and build up a big new fund of its own by doing that. It’s got a number of opportunities that it’s looking at. They’re mainly manufacturing investments in Indonesia where it would partner with a foreign company. They’re talking about batteries. They’re taking about EVs. These are the sort of things that Danantara is looking at for its first round of investments.
Marc Filippino
OK, so there’s going to be a lot of Indonesia’s wealth concentrated into this one institution, the sovereign wealth fund. Why could this be a problem?
Robin Harding
Well, I think the thing here is that because it’s going to take control of such a large part of Indonesia’s economy, and then because it can have all of this money, they’re talking $8bn to $10bn a year to reinvest. It’s really, really important that the governance of that is clean and proper. And hanging over this, I guess, is the example of 1MDB, the Malaysian sovereign wealth fund from which billions of dollars were embezzled. Indonesia wants its new fund to be like Temasek, which is the very successful Singaporean sovereign wealth fund. So it’s about getting the right governance for the new fund. So it follows successful models rather than the more dubious models that have happened sometimes in other countries.
Marc Filippino
OK, so what does that model look like in this case?
Robin Harding
In the interview I did with the chief investment officer, he said that they would aim to run it with the governance standards of a public company. So there would be transparency, there would be disclosure, there will be audit, all those things that you normally have to make sure a public company is run properly. They’ve also announced an advisory board with some high-profile figures on it, like Ray Dalio, the founder of Bridgewater Associates; Jeffrey Sachs, who’s a well-known development economist; Thaksin Shinawatra, the former prime minister of Thailand; and I think that’s all part of an effort to reassure markets that it will be run well and that the investments that they make will be carefully thought through and advised by experts.
Marc Filippino
Robin, what are the risks to Indonesia if the fund doesn’t live up to the hype?
Robin Harding
I think the big things that people are really worried about is, one, whether it has a very distorting effect on Indonesia’s budget. So for example, if they force the state-owned enterprises to increase their dividends in order to make sure that Danantara has more money to invest, then that would be damaging. Previously, the dividends from the state-owned enterprises went to the national budget, so they would create a gap that has to be filled somehow, so that’s obviously a concern. But the stakes are so high given the amount of money involved here that I think everyone thinks it’s very important to get it right.
Marc Filippino
That’s the FT’s Robin Harding. Thanks, Robin.
Robin Harding
Thanks very much.
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Marc Filippino
Before we go, some showbiz news.
Saturday Night Live audio clip
Live from New York, it’s Saturday Night!!!
Marc Filippino
But make that … London? The American sketch comedy show Saturday Night Live will get its own British version soon. Plans are in the works between the broadcaster Sky and the media group NBC. Executives say you can expect the same fast style, musical guests and iconic hosts, you know, the stuff that has made SNL a hit in the US for 50 years. All that to say is that it looks like the US is finally repaying the UK for The Office.
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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 next week for the latest business news.
The FT News Briefing is produced by Sonja Hudson, Fiona Symon, Lulu Smyth, Ethan Plotkin, Kasia Brousallian, and me, Marc Filippino. Our engineer is Joseph Salcedo. We had help this week from Katya Kumkova, Michael Lello, Peter Barber, David da Silva, and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song is by Metaphor Music.
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