US and Iran agree to two-week ceasefire talks

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0:17Good morning from the Financial Times. Today is Wednesday, April 8th, and this is your FT News Briefing. Iran and the U.S. have agreed to ceasefire talks, and hedge funds don't have a lot of faith in Europe's economy right now. Plus, botched plans for a German warship highlight the issues with European rearmament. Constantly hear calls both from politicians on a national and a European level for more joint procurement and cooperation on arms projects. But when you look at the actual examples, they really don't offer very much hope. I'm Mark Filippino, and here's the news you need to start your day.

0:58late yesterday u.s president donald trump said he would quote hold off on bombing iranian civilian infrastructure for two weeks the announcement came on social media about 90 minutes before a deadline trump had set for massive strikes that were going to target bridges and power plants across iran earlier in the day he threatened quote a whole civilization will die end quote if no deal was reached in time. Trump said the ceasefire would be subject to the complete, safe, and immediate reopening of the Strait of Hormuz. Iran has shut down transit in the waterway since the start of the war in late February.

1:32About a fifth of the world's oil supplies passed through the strait before the conflict. Shortly after the president's post, Iran said it agreed to the two-week ceasefire and added that, quote, with complete distrust toward the American side, it will begin negotiations in the Pakistani capital of Islamabad on Friday. In his post, Trump said he received a 10-point proposal from Iran and believed it is, quote, a workable basis on which to negotiate. Global oil prices declined sharply following President Trump's message. Stocks across Asia and U.S. treasuries rallied.

2:08Hedge funds are betting against European stocks in droves. The funds amassed a record number of short positions during the first quarter of this year. They're betting that the Eurozone will get hit hard by the economic fallout from the Iran war. Here to tell us more is the FT's Rachel Reese. She covers markets from London. Hi, Rachel. Hi, thanks for having me. Good to have you. So just put this in the context for us. How many short positions are we talking about? And what does that figure actually mean? So in the UK and the EU, when your short position against a stock is above a certain level, you have to disclose that to the relevant authorities.

2:44So the number of these short disclosures against European stocks increased to nearly 12 ,000 in the first three months of this year. We got that figure from this data provider that we've been working with called Breakout Point. That's the highest level since these rules were first introduced in 2012. There's a slight caveat here, you know, this doesn't actually mean that there are 12 ,000 individual short positions, that would be quite a lot. If a fund changes its short position multiple times, that will show up as multiple individual short disclosures. So that's, you know, just to get the caveats out of the way there.

3:17Sure. And, you know, caveats aside, there are some things that we can glean from all these short positions that hedge funds are taking. Why are they shorting European stocks so aggressively right now? The number one kind of narrative in markets right now that really can't be avoided is the war in Iran. It's been sending total shockwaves through global financial markets, particularly because of its impact on energy prices. And that has really been impacting Europe because Europe is very exposed to energy prices. It imports a lot of its energy, unlike the US. So rent crude prices have surged more than 50 % since the start of the war.

3:56European natural gas prices have surged by the same amount. And basically, this all means kind of very bad news for European stocks. And if you look at some of the stocks that are being shorted, I think that's really instructive as well. Whiz Air is a budget airline listed in London. That has become the most shorted stock in Europe since the war began. It's been warning about the global air disruption impacting its profits. It's also been hit by the jet fuel shortage. More broadly, it's really kind of some of those consumer names. Sainsbury's, a supermarket. The war's impact on global growth, on kind of inflation, on the consumer, generally is one of the big motivating factors behind a lot of these shorts.

4:36Just to cover all our bases, though, this isn't just the energy crisis. There are other factors coming into play here for this shorting that we're talking about, right? Yeah. We're looking at data that spans the whole first three months of the year. And the war only started at the end of February. You know, we've seen a few other big narratives in markets. One of the big things is fears of AI disruption. And that definitely is something that's also coming in here. But looking at the kind of bigger picture, the war in Iran is the really big narrative. Now, Rachel, I know that things can change on a dime, but wasn't it just last year that Europe was seen as safe while the U.S.

5:09was looking more volatile and investors were coming over to your side of the pond? Well, yeah, I mean, that's been one of the really big impacts of the war. We've just really seen a total reversal of the themes that were going on in markets. So Europe was having a really good year last year. It outperformed the US. And it was already having a really good start to this year, particularly the UK. But basically, because Europe is so exposed to those higher energy prices, people are really worried about the impact of the war on European growth, European inflation. And I mean, one of the analysts I spoke to for this story said, Europe is particularly shortable in a crisis, which kind of sums up the whole piece, really.

5:48Rachel Rees covers markets for the FT. Thanks so much, Rachel. Thank you.

5:58Turkey has been shedding gold. The country's central bank sold or loaned out$20 billion worth of the metals since the Iran war started at the end of February. Its holdings are now at their lowest level in more than two years. The moves are part of Turkey's attempts to prop up its currency, the lira, and it isn't the only country downsizing its gold holdings. The global energy shock has led a number of countries to do the same thing to strengthen their currencies or improve their fiscal situation. That includes Russia and Poland. This marks a big shift for gold, though. Central banks were a main driver of its rally over the past couple of years.

6:33Prices hit a record in January. Now that central banks are changing their tune, prices are falling. In March, by 11%. That's gold's worst month in 18 years.

6:49Germany wants to lead the charge as Europe builds up its military capacity. Last year, it vastly expanded its defense budget. And a key part of any rearmament effort is, of course, having a leading warship. But this project has instead turned into a disaster. Here to explain what happened is the FT's Berlin correspondent, Laura Patel. Hi, Laura. Hi, Mark. Walk me through what happened here. Where did building Germany's leading warship go so wrong? There's a very long story here. It dates back a little over a decade ago. The defense minister in Germany was a woman called Ursula von der Leyen, who's now the president of the European Commission in Brussels.

7:25Yeah, sounds familiar. At that time, she was in charge of German defense ministry. And she knew that the Navy wanted a new warship. And so she put out a European-wide tender for this project. And it ended up being won by a Dutch company called Damen. They won it in 2020. And this contract was a really big deal. It was the biggest warship commissioned by the German Navy since World War II. But it has become embroiled in all sorts of problems. Yeah, tell me about those problems. What are the issues that we're talking about? Because I described it as a disaster. Well, Darman decided that they needed to adopt new shipbuilding software for this project.

8:05And it turned out they had a really hard time implementing it. Their engineers started having their screens going blank. And then the shipbuilding itself was going to take place or is taking place in the north of Germany. And when the designs were transferred to these companies, something went wrong in the handover. And literally bits of steel started coming out the wrong shape. and the workers had to manually adjust these pieces of steel. This started causing serious delays in the project and really, you know, major headaches. Now, Laura, what has Dahmen said about these problems? They're keen to stress that, yes, they did have software problems at the beginning, but they've always worked in a climate of mutual respect and cooperation with German authorities.

8:46And one part of what went wrong is the software issue. But on the other hand, I've spoken to a lot of sources who have very deep involvement in this project. And they say that the company also suffered a lot from Germany's absolutely notorious procurement system, which was unbelievably slow. So on the one hand, I think German officials do understand that this really needs to speed up. And in fact, they have been speeding it up. But it's not as easy as some politicians think it is. Yeah, this seems like an especially big problem given the recent push to rearm Germany and the rest of Europe. But, you know, where's this pressure coming from?

9:24I would say there are two main sources of pressure on Europe and specifically Germany to rearm. So one of them is the war in Ukraine. Seeing Vladimir Putin invade a neighboring country has just upended a lot of assumptions that European countries had about the security situation here. And then the second factor is Donald Trump. The second term in office for Trump has just delivered like series after series of shocks to European ideas about NATO, really, and whether or not America can be relied upon. And I think the intersection of those two things has prompted a turnaround. And they are now plowing hundreds of billions into rearmament and to building up the military.

10:06And Chancellor Friedrich Matz, who took office last year, has said he wants Germany to have the strongest conventional army in Europe. And this warship feels a little bit like a litmus test here. So I'll ask you, you know, what does this procurement disaster tell you more broadly about this rearmament effort? Yeah, I find it so fascinating because you constantly hear calls both from politicians on a national and a European level, also from industry for more joint procurement and cooperation on arms projects in Europe. But when you look at the actual examples, they really don't offer very much hope.

10:41So there's this very big flagship Franco-German fighter jet project called FCAS, which is really on its knees and seems to be about to die due to failures in industrial cooperation. Then you have this warship, which was built by a Dutch company for the German Navy. And Germany and the Netherlands are two of the most closely bound countries in Europe. Their two armies are basically completely integrated. And yet it just seems to have not been possible. And that is a pretty depressing message for people who want to see more European cooperation on defense procurement. Certainly not a good sign. Laura Patel is the FT's Berlin correspondent.

11:20Thanks, Laura. Thanks, Mark.

11:30Four, three, two, one. Booster ignition and liftoff. The crew of Artemis II now bound for the moon. Humanity's next. You're hearing a historic space launch. Four astronauts aboard NASA's Artemis II mission took off on April 1st. As we surpass the furthest distance humans have ever traveled from planet Earth, we do so in honoring the extraordinary efforts and feats of our predecessors in human space exploration. That's one of the astronauts speaking from the spacecraft. They made it to the far side of the moon, which is invisible from Earth. The astronauts are now on their way back home. They're expected to land off the coast of California on Friday.

12:17You 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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