Italian and French bonds meet in the middle

0:01Good morning from the Financial Times. Today is Tuesday, August 19th, and this is your FT News Briefing. Donald Trump is floating security guarantees for Ukraine, and U.S. tariffs are pushing India closer to China. Plus, French bonds are slipping down to Italy's level. The market basically telling you that they're starting to see these two countries as of similar risk profiles is just a real moment to take stock of. I'm Sonia Hudson, and here's the news you need to start your day.

0:40U.S. President Donald Trump met with Ukrainian President Volodymyr Zelensky yesterday. Well, thank you very much. It's an honor to have the president of Ukraine with us. Trump also met with officials from several European countries. He suggested that U.S. security guarantees for Ukraine are on the table as part of a potential peace agreement. They are a first line of defense because they're there. They're Europe. But we're going to help them out also. There's going to be a lot of help. The Financial Times has also learned that as part of a security guarantee deal, Ukraine will offer to buy$100 billion of American weapons.

1:20They would be financed by Europe. When asked what kind of security guarantees Zelensky would need to make a deal, he said... Everything. And really, it includes two parts. First, strong Ukrainian army. And it's a lot about weapon and people and training missions and intelligence. And second, we will discuss with our partners. And Trump may try to arrange a trilateral meeting with Zelensky and Russian President Vladimir Putin. If we don't have a trilat, then the fighting continues. And if we do, we have a good chance. I think if we have a trilat, there's a good chance of maybe ending it. Trump said he'd call Putin after yesterday's meetings.

2:08Indian Prime Minister Narendra Modi is under a ton of pressure to find new trading partners. That's because the U.S. has hit India with massive tariffs. And China might be a surprise option for India. The two countries have a disputed border, and there was a deadly clash there in 2020. But China's foreign minister, Wang Yi, is on a two-day visit to India, and it could be a sign that diplomatic relations are thawing. I'm joined by the FT's Mumbai correspondent, Christian Kashuk, to discuss this. Hi, Christian. Hi. So how significant is this visit by Wang Yi? It's definitely quite significant because since border scumishes in 2020, there have been very, very few high-level visits between India and China.

2:57So Wang Yi has met his Indian counterparts in different locations. But now he's coming here to continue with the discussions about resolving the border issue because the border still remains largely undemarcated. And it comes at a very crucial point because U.S. has announced up to 50 % tariffs on India, which is the highest in the world, along with Brazil. So a visit from Wangi can provide some relief to India, not in terms of finding a new market for Indian goods potentially, but definitely in terms of what it can get from China. Now, Christian, I mentioned that Modi is under a lot of pressure because of Trump's decision to raise tariffs.

3:36Could you tell us a little bit more about that? Absolutely. See, it's quite important to underline here that U.S. is India's largest trading partner. The trade surplus between India and US is$40 billion favoring India. So now with the 50 % tariff, almost all other peers of India have much cheaper rate of tariffs. And those exports will directly be hit. Sectors like textiles and car products, industry leaders have told us that their clients in the US are already threatening to go to some other geographies. This creates a lot of pressure on Modi because a lot of these sectors are driven by small and medium enterprises.

4:12They are the main drivers of employment and job creation in the country. And if these sectors come under pressure, that really threatens Modi's hold over the narrative about how well India is doing. And how has Modi responded to that threat? So at the end of last week, he announced that the first thing that his government is planning to do is to simplify the goods and services tax. He's also said we need to cut red tape. He's, of course, in his own style announced that he will be a dam against any attacks on Indian industry. But then he has to provide direct capital support to many of these industries if the 50 % tax, the tariff rate comes into effect.

4:50So do you think that China then could provide that kind of support that Modi's looking for? What has also happened since the border skirmishes, India has largely blocked almost any direct funding from China for the Indian industry. And visas have largely been frozen. India is not getting skilled labor. India is not getting the technology. If these discussions continue to mark further thaw, India can allow some of those things, maybe not in the critical sectors, but some other sectors. So Indian industry definitely needs more Chinese technology for efficiency, and that could start flowing in along with some Chinese funding for the Indian industry.

5:25Even for domestic consumption, you have to improve your manufacturing. And what the industry leaders, the lobby groups are saying, that one thing that might help at this stage would be direct capital infusion. Krishan Kaushik is the FT's correspondent in Mumbai. Thanks, Christian. Thank you.

5:47SoftBank has agreed to invest$2 billion into Intel. The Japanese conglomerate's investment adds up to a 2 % stake in the company. And it'll be a big boost to the struggling U.S. chipmaker. The Trump administration is also considering investing in it. Intel shares rose 5 % in after-hours trading.

6:16France's borrowing costs are way up. A sell-off of 10-year bonds has sent yields to just about the highest they've been in more than a decade. Meanwhile, Italy is seeing bond prices stabilize. The spread between borrowing costs in both countries is now closer than at any point since the financial crisis. Here to tell us why this milestone is so important is the FT's Leila Abood in Paris. Hi, Leila. Hello. So, Leila, why is it worth comparing these two countries to begin with? They're both coming from very different places. I mean, if you think back to the financial crisis, the countries on Europe's southern periphery were considered the least reliable debt payers.

7:01There's obviously Greece that went into a full-blown crisis and had to be rescued. Italy never got to that point, but has chronically been a country because of the nature of its economy and just its political culture has had high government borrowings and an economy that wasn't always robust enough to support it. And France is, you know, the second biggest economy in the Eurozone. So they're just coming from very different places in terms of how investors view them and to see the bond yields converging, which is the market basically telling you that they're starting to see these two countries as of similar risk profiles.

7:34It's just a real moment to take stock of. Okay, well, let's look at the financial situation in each country then. What is Italy getting right? First of all, they've had a period of political stability, which is long for, you know, Italy context where the governments can fall relatively frequently. Georgia Maloney has a three-part, you know, coalition that has pretty much done what they said they were going to do on the economy. They've also just kind of gotten religion on controlling their deficits in a way that they probably didn't in the past. They've managed to stabilize their deficit, which is still high as a percentage of GDP.

8:10But what the market cares about is the trend, right? And the fact that it's not going up and that it's forecast to stabilize in the coming year or so. But again, it's the trend that counts. France is going up and Italy is going down. Okay, so what's going wrong with France's fiscal situation? There's a culture of spending a lot. The social welfare programs account for more than half, I think, of the government outweighs. And that goes to pensions, unemployment, the healthcare system. But there was also just kind of a, what was I think it was a trillion added to the debt just since 2019 or so. Some of that's COVID spending.

8:46But what the French did, unlike their neighbors, they kept spending pretty heavily to subsidize the economy. During the energy crisis, they provided a lot of support and price controls both to households and business, which just cost a lot of money. I also think something happened last year, obviously, on the political front. Emmanuel Macron called early elections and ushered in a parliament that was even more broken and dysfunctional than the previous one. And his party and his centralist alliance, they no longer have a majority in order to get anything done in parliament. And are French politicians doing anything now to try to get their fiscal house in order?

9:22Yeah, of course. The French prime minister, whose name is François Beirut, has been working on a draft proposal, which he outlined before the summer break. That includes about$40 billion worth of fiscal effort, which is going to include tax increases and spending cuts. The only problem is that he really doesn't have the power to get this done. There's a real risk that his government will fall over this budget because the centrist alliance behind him and Emmanuel Macron simply do not have the votes in parliament to pass a budget, which then puts them at the mercy of the opposition. Leila, I want to go back to the narrowing bond spreads that we're seeing between France and Italy.

10:03What does that tell you about Europe's wider fiscal trends? That the old framework of, you know, this PIGS acronym we used to have that referred to Portugal, Italy, Greece, and Spain as kind of the bad students in the class on deficits and debt, it just really doesn't apply anymore. The pigs aren't really pigs anymore, and France is sort of the new pig. I don't know what metaphor to use in there. But the French fiscal situation is quite bad. And just because the bond investors have not panicked yet, the yields are up. But this is not a dramatic freak out. But bond markets tend to move quickly when they decide to move, and it's pretty unpredictable.

10:44Leila Abood is the FT's Paris Bureau Chief. Thanks, Leila. Thank you.

10:55Soho House is leaving the public market. The once-edgy London Members Club has agreed to a$2.7 billion deal to be taken private. It'll be owned by MCR Hotels, which is one of the biggest U.S. hotel owners. Soho House said MCR Hotels would buy out its remaining public shareholders at$9 a share. That's higher than the stock price at the close on Friday, but still way below the$14 price tag when Soho House floated back in 2021. 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.

11:52Leila Abboud: Capital raising is being redefined in real time from macro disruptions and shifting investor expectations to AI-driven demand and the rise of private credit. When headlines can tilt markets overnight, how can companies stay on course? Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts. Hi, I'm Nick, co-host of The Best One Yet. You optimize your workouts. That's your portfolios and that rando startup idea that hit you in the middle of the shower.

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