Bond investors are counting on US tariff revenues

0:03Good morning from the Financial Times. Today is Friday, September 5th. And this is your FT News Briefing. NASDAQ is going after so-called pump and dump stocks. And Africa's answer to Amazon is trying to turn things around quickly. But first, U.S. senators grilled President Donald Trump's nominee for the Federal Reserve yesterday. You have made clear that you will do or say whatever Donald Trump wants you to do or say. And that may work in a political position, but it takes an axe to fed independence. I'm Mark Filippino, and here's the news you need to start your day.

0:43How much sway should the U.S. president have over monetary policy? That was the big topic during Stephen Myron's Senate confirmation hearing yesterday. Donald Trump nominated him to fill a vacant seat on the Fed's board of governors. Myron currently serves on the president's Council of Economic Advisors. He has agreed with Trump's view that the Fed should cut rates, and there's a growing concern that he will use his ties to the president to erode central bank independence. Here's what Myron had to say. The president is entitled to a view on appropriate monetary policy, as is everyone else with an interest in the subject, and I welcome everyone sharing their views.

1:19Trump has threatened to fire Fed Chair Jay Powell and is in the process of trying to remove Fed Governor Lisa Cook. If she is replaced and Myron is successfully added to the Fed, the board would have a majority of members who support Trump's policies. Myron told lawmakers yesterday, though, that he would act on his own. If I'm confirmed to this role, I will act independently, as the Federal Reserve always does, based on my own personal analysis of economic data, my own personal analysis of the effects of economic policies upon the economy, and act based on my judgment of the best economic policy possible.

1:55The Senate, where Republicans hold a majority, is expected to confirm Myron, but it's unclear when.

2:06Bond traders are excited about U.S. President Donald Trump's tariffs. They're betting that increased revenues from the levies will boost U.S. public finances. This is a big switch from earlier this year when Trump's trade war actually caused a brutal treasury sell-off. Here to explain is the FT's Emily Herbert. Hi, Emily. Hi, Mark. So Emily, just walk me through what these bond investors are thinking here. Yeah, so when Trump first announced those reciprocal tariffs in April this year, investors were particularly worried that the tariffs would cause inflation in the US. And inflation is really bad for bonds.

2:44And so US government bonds or treasuries sold off. But that was a pretty short-lived sell-off. And there have been a few new developments since then, including the passage of Trump's One Big Beautiful Bill, which includes loads of tax cuts that are going to massively increase the US deficit. So now, rather than the big trade war, the main worry for a lot of bond investors is that the US is spending a lot more money than it's bringing in. So what some investors have started saying to us is that tariffs are now bringing in revenue, which can help offset the spending from the One Big Beautiful Bill.

3:19And according to the kind of budget forecasts coming from the U.S., the tariff revenue is supposed to boost U.S. government revenue by about$4 trillion over the next decade, which coincidentally is about the same amount that the one big beautiful bill will increase borrowing by. And the deficit is the thing that is causing the sell-off that we were seeing this week and last week, right? Yeah. So investors are really worried about the size of the U.S. deficit. And that's not just the U.S. That's a global problem of kind of growing government debt. Another thing that really crystallized was that at the very end of last week, an appeals court upheld this ruling by the U.S.

3:59Court of International Trade that Trump had actually exceeded his powers by imposing some of those tariffs. So they might be illegal. So suddenly investors were looking at the risk that with an already massive U.S. deficit, that tariff revenue might suddenly not exist anymore. So that really played into this kind of deficit worry at the beginning of this week. And Emily, why is bringing down the deficit good for treasuries? Investors are worried about the U.S. deficit because buying a U.S. treasury is essentially a bet that the U.S. government will be able to pay back your loan in 10, 20, 30 years' time.

4:39If the deficit is really big, there is a risk, albeit quite small, that the government would default on that loan and therefore not be able to pay back the investor. Are tariffs enough to actually plug the deficit if it is so big? No, not necessarily. What a lot of investors have been saying is that while the tariffs may be a bit of welcome revenue that maybe ease the pressure at the margins in terms of the government deficit, in fact, that deficit is still just so large that the tariffs aren't going to make a huge difference. And it doesn't really, for a lot of people change their view of US government debt.

5:17If investors are selling off bonds and yields go up, it's going to be more expensive for the government to pay back its debt. Isn't this a bit of a self-perpetuating crisis? Yeah, that is something that a lot of analysts have been pointing out to us, is that in some ways it's a vicious circle. So as people sell their bonds, the price goes down and the yield goes up. That increases the cost of borrowing for the government, which means they're spending even more money paying back their debts. That makes the debt concern even worse, which then again sends the bond price down and the yields higher.

5:52And so, yeah, a vicious cycle here is something that investors are worried about. Emily Herbert covers markets for the FT. Thanks so much, Emily. Thanks, Mark.

6:06A couple of weeks ago, we told you about the proliferation of suspected so-called pump and dump schemes. They're scams involving people who inflate a company share price, usually through promotion on social media, and then sell their own assets. These have led to billions of dollars in losses for investors of U.S.-listed Chinese stocks. Now, after an internal review, the tech-heavy NASDAQ stock market index is doing something about these scams. It's tightening rules and trading standards for small stocks. The exchange will implement what it calls an accelerated process for suspending or delisting companies that don't meet its standards, it'll also tweak requirements for companies operating in China.

6:47Critics, though, worry that rather than target newly listed companies, scammers would simply just pump and then dump companies that are already trading on the Nasdaq.

7:04Jumia is the so-called Amazon of Africa, and the aspiring online shopping giant was the largest African initial public offering outside the energy sector when it went public on the New York Stock Exchange. Now, this was back in 2019. Since then, the company has really struggled. Last year, Jumia recorded an operating loss of almost$100 million. Our West Africa correspondent, Anu Adioie has been following the story. He joins me now to talk through Jumia's ups and downs. Hey, Anu. Hey. So give us a bit of background on Jumia. When and where was it founded and how did it gain all its early hype? Yeah.

7:41So Jumia was founded in Nigeria in 2012. It was founded by four people. Two of them were ex-McKinsey consultants. And the idea was, you know, this was going to be Amazon for Africa. It was going to deliver food to your home. It was going to deliver groceries. It was going to deliver electronics. It was this idea that as Africa was getting increasingly connected, people on the continent were ready to shop online. Jumia, through its parent company at the time, was able to attract more than$800 million in investment. No African startup before or after has been able to attract that level of investment.

8:25Yeah, but based on what I said a little bit earlier, things didn't go quite according to plan. What happened? That would be an understatement to say things didn't go according to plan. Even before they had gone public, they were already showing signs of strain. By the time Jumia went public, he was operating in 14 markets across the continent. There was a sense that Jumia had spread itself too thin. He had too many verticals. You know, Jumia was delivering food. He had a travel business. They had this fairly, you know, unusual arrangement of where senior executives were not based on the continent.

9:02They maintained a large office in Dubai. You know, it was all of these things that I think with the benefit of hindsight feels a bit extravagant for a company that made losses every year in its existence since 2012. All right. So it sounds like Jumia was doing way too much. Are there also challenges that it's been facing that are specific to Africa? Yeah, that's true. You know, if you're trying to do e-commerce on the continent, you know, a large part of that is logistics and being able to get things from point A to B. logistics has come a long way on the continent but it's still not where it should be you know there's still big cities where you don't have street addresses for example which makes it difficult to be able to find a place right and i think the fundamental thing that has also been a problem is that jimia basically was founded on this idea that as more people on the continent are connected to the internet they will be interested in shopping more online one half of that bet is paid off.

10:06More Africans are connected to the internet than ever. But people still prefer to go to markets and the environment is not conducive to e-commerce blossoming. Where do things stand now though, Anu? I have to assume that they're really trying to turn things around. They are. They have their eyes set on reaching profitability by 2027. Jumia is now a smaller version of itself. They've shaved off a lot of the non-core verticals. But I think what's interesting now is Jumia's and their leadership's realization that kind of the middle class that they were hoping for is just not going to materialize in Africa anytime soon.

10:51And so they're focusing what they describe as the real middle class, people who are earning$200 to$300 a month. I think some of that is going to be complicated by the fact that Timu and Shiyun, these Chinese low-cost giants, are now moving into Africa. But I think the realization that they need to kind of recalibrate the expectations of what type of customers they're able to serve means that, you know, they do have a chance to succeed. That's the FT's Anu Adeoye. Thanks, Anu. Thanks for having me.

11:27just one more reminder that i'm going to be in london tomorrow for the ft weekend festival if you have questions about u.s politics and the economy let me know and we may actually answer it at our live event also one last chance for a 10 discount code to ft weekend fest that you can find in the show notes i hope to see you there this has been your daily ft news briefing check back next week for the latest business news. The FT News Briefing was produced this week by Sonia Hudson, Josh Gabbard-Doyon, Katya Kumkova, Persis Love, Victoria Craig, Fiona Simon, Ethan Plotkin, and me, Mark Filipino. Our show is mixed by Blake Maples, Alex Higgins, John Mark Eck, and Kelly Gary.

12:05We had additional help from David DaSilva and Gavin Kallman. Our acting co-head of audio is Topher Forhears. And our theme song is by Metaphor Music.

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