UK chancellor John Healey inherits tricky finances

0:02Good morning from the Financial Times. Today is Tuesday, July 21st, and this is your FT News Briefing. Trump is threatening to slap huge tariffs on Canada, and we'll take a look at what's at the top of the list for the UK's next chancellor. Plus, the London Stock Exchange is adding a night shift. I'm Mark Filippino, and here's the news you need to start your day.

0:37U.S. President Donald Trump said Monday he'll hit Canada with new 50 % tariffs. The levies will go into effect in 30 days. Senior trade officials say they're in response to, quote, unfair trade practices. The new tariffs threaten to reignite a trade war the U.S. president started last year with his so-called Liberation Day tariffs. Earlier this year, the U.S. Supreme Court struck down those blanket fees, but the administration plans to use a different legal justification for Canadian imports. Canada is the U.S.'s second biggest trading partner after Mexico. The three countries recently failed to renew the U.S.-Mexico-Canada trade agreement known as the USMCA.

1:15The new duties will contain exemptions for energy, potash, critical minerals, fish, and other products, but they will include other goods covered under the USMCA.

1:31Andy Burnham laid out a 10-year plan after he was sworn in as prime minister yesterday. We will help people to live well, building a more preventative state, investing in people's success rather than paying for failure. And that work starts now. I will soon... Burnham also announced a new chancellor. Out is Rachel Reeves, and in is John Healy, the UK's former defense secretary. He'll take over the country's finances. But the budget he's inheriting, well, it's not exactly enviable. Here to tell us more about what he's up against is the FT's economics editor, Sam Fleming. Hi, Sam. Hi, Mark. So tell us more about what's going on with the UK budget, and what are the top things that Healy will need to deal with?

2:16So John Healy inherits a pretty tough fiscal position. The last Chancellor, Rachel Reeves, doubled the headroom against her key fiscal rule to around£23 billion in her most recent budget. But since then, there's been a lot of pressure on the economy from the war in Iran, higher inflation and so on. So a lot of economists think that fiscal buffer against the self-imposed fiscal rules that the UK government abides by will have been compressed a fair bit, potentially halved. This is a country which is trying to get borrowing down, trying to get debt down towards the end of the current parliament.

2:53So there's just not a lot of space for tax cuts or increases in spending. We're also in an inflationary environment in the UK right now. Another reason why expansionary fiscal policy, looser fiscal policy is not seen as a good idea by economists. So this is not an easy inheritance by any means for John Healy. Yeah, it sounds like he has some really limited options here, Sam. What do we know about Healy and how we might handle all this? Well, he was the defense secretary under Keir Starmer. He resigned because he felt the government wasn't doing enough to ratchet up spending on defense priorities.

3:27So we could expect him to really want to prioritize defense in this new role if he's consistent with his position in his previous role. Andy Burnham, the new prime minister, has said he wants to introduce a cost of living package this week, a package aimed at reducing some of the pressures on households because of rising energy costs. That's another cost that we would expect him to have to find money to fund. And then on top of that, Burnham has been talking about wanting to alleviate the pressure on lower earners by increasing the personal allowance at which income tax kicks in. Again, that's a big effective tax cut.

4:05So there's a lot of talk about big commitments when it comes to spending or lower taxes, especially targeted towards lower earning households. But no sense yet as to how any of this will be funded. Now, there's been some chatter about tax rises. Could that happen? Yes, I think so. And I think we would expect the direction of travel to be towards higher earners to really shoulder the burden of any increases in taxation areas. Certainly people in the Labour Party have talked about in the past wanting to focus on a wealth taxation. There could be changes to property taxation as well, which again might target more expensive housing.

4:42But at this point, there's not very much detail. Do we have a sense of how markets and investors feel about all this? After the initial words that Andy Burnham said in front of Downing Street and then to reporters yesterday, the gilts market, so the government bond market in the UK, did lose some ground. It sold off a bit. It was a weekday in general for government bonds around the world, but the UK underperformed some of its peer markets. And that was because of a couple of things that came out from those early hours of Andy Burnham's premiership. Firstly, a view that there is flexibility within the fiscal rules I mentioned earlier to permit some borrowing for investment.

5:22And then there was talk about this cost of living package, this talk about potentially wanting to raise the personal allowance for income tax. this is all costly stuff and there's no clarity as to how it will be funded. So we saw some retreat in guilt prices. On the other hand, that predated the announcement of John Healy as Charles. He will be seen broadly, I think, as a highly experienced government minister, a safe pair of hands. So broadly, I think he will be a relatively reassuring figure for the guilt markets. That's the FT's Sam Fleming. Thank you so much, Sam. Thanks, Mark.

6:04China is considering tighter export controls on AI and semiconductor tech. That's according to two people involved in the discussions. This comes as China has been gaining ground in the AI rivalry with the U.S. Last week, Moonshot AI released its Kimi K3 model, and it turns out that it outperforms the latest anthropic model by most benchmarks. Regulators in Beijing have been consulting domestic companies on how to limit the transfer of key AI training data. China would still let customers abroad access the models and services, though. The officials have also been discussing on how to prevent foreign chip makers from producing semiconductors based on Chinese designs.

6:41But some in the country's tech sector have said that the tighter controls could slow down AI development instead of protecting it.

6:55The London Stock Exchange is appealing to the night owls out there. It announced today that it'll launch a nighttime trading venue next year. Here to discuss is the FT's digital markets correspondent, Niku Esgari. Hey, Niku. Hi. So what's the plan? 24-hour trading? Is that actually going to be a thing? It's heading that way, yeah. So like you said, the LSE has unveiled its plans to allow round-the-clock trading 24-5, so within the week. At the moment, the LSE runs from 8am till 4.30pm, but it's planning to launch a new, slightly separate venue from what it has at the moment that will run from 5pm to 7.50am.

7:34So the night shift, if you like, with a little pause to let the end of day processes take place. But essentially, they're starting with exchange-traded products. And all the same exchange-traded products that you can trade on the main venue will, from next year, be able to be traded on that night shift on this separate venue. Now, in the US, the NASDAQ and the New York Stock Exchange want to launch extended trading hours too. What's the motivation behind this, Niku? Crypto. Crypto exchanges that have been offering 24-7 trading really since the beginning of crypto years ago. So you've seen retail traders flock to platforms like Coinbase, like Kraken, like some of the retail brokerages that are allowing 24-7 trading.

8:16And you're also seeing these crypto companies are now moving more into LSE, NASDAQ territory, by letting retail traders trade stocks, trade US stocks, mostly at the moment, on a 24-5, 24-7 basis. And it's this competition between the traditional exchanges and the crypto exchanges that is pushing the traditional exchanges to say, hey, we can do this too, and we should be doing this too, to be offering 24-7 or 24-5 trading. Crypto is pretty volatile. Are there any dangers in adapting a similar model for an exchange like LSE? Yeah, there's lots of risks. There's operational risks, there's liquidity risks.

8:55But the same risks that you see in crypto don't necessarily apply. Like the volatility that you said, That's more about crypto and Bitcoin and that as an asset class, whereas these are the same stocks, the same exchange traded products that you will trade at 9 a.m. that you can potentially now trade at 9 p.m. So it's a slightly nuanced risk there. It's not the hours, it's the product. So the LSE is doing this to catch up to its competition in crypto. But, you know, who is most likely to take advantage of these nighttime hours? The LSE says that because of where London is on the map, because of the time zone, this will really benefit investors in Asia who want to trade European and US securities at a time that is more convenient for them because they really are so far away from New York.

9:42And so for a retail trader in Asia or even a retail trader in London or Europe, they will, from next year, be able to trade via the LSE at a time that's easier for them. Niku Esgari is the FT's digital markets correspondent. Thanks, Niku. Thank you.

10:05Paramount's$110 billion acquisition of Warner Brothers' discovery is on hold. A federal judge yesterday put a temporary pause on the merger while she considers a lawsuit against it. The legal challenge comes from a dozen Democratic states. Those states claim that the deal will smother competition in Hollywood. it. Paramount says that the antitrust argument doesn't have merit, though. The judge scheduled a hearing for August 3rd over whether to extend the pause, and all this presents a potentially costly problem for Paramount. There's an October 1st deadline to complete the deal. After that, Paramount will owe$650 million to Warner Brothers Discovery shareholders for every quarter the merger is not finalized.

10:44The fee was offered by Paramount to sweeten its bid as it tried to outdo Netflix earlier this year. And if the deal does eventually go through, it would be the largest merger in Hollywood history.

10:58You 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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