Wall Street digests bitter economic data

0:02Good morning from the Financial Times. Today is Monday, August 4th, and this is your FT News briefing. Financial markets are digesting uncomfortable data about the U.S. economy. And the boom years may be over for luxury brands. Plus, U.S. President Donald Trump's tariffs on Brazil aren't just about trade. He's imposed much higher tariffs than he has on other countries, and he's tied them to specifically political demands. I'm Jess Smith, and here's the news you need to start your day.

0:45A lot changed on Friday for financial markets. New U.S. economic data showed a different picture than the one investors have seen so far. It's one of slowing jobs growth and warming inflation. To talk about what this means, I'm joined by the FT's U.S. financial commentator, Rob Armstrong. He also co-hosts the FT's Unhedged podcast. Hi, Rob. Hi, how are you? I'm doing well, thanks. So, Rob, can you remind us what happened on Friday after this new data came out? I mean, how did markets react? Both the bond and the stock markets responded strongly. So bond prices rose, meaning bond yields went down in anticipation that the weaker labor market would spur the Federal Reserve to cut interest rates.

1:33And the S &P 500, for example, on the stock side fell by 1.6 percent. The more tech heavy Nasdaq fell by over 2 percent. So after a long run of good feelings in general in the markets, Friday was like a quick intake of breath and like, whoa, maybe the picture is not what we thought it was. Right. So it was like a bit of cold water, perhaps. Yeah, that would be a good metaphor. And of course, we're also right in the middle of earning season, meaning the time when publicly traded companies report their quarterly results. And although some of those results have been quite good, there have been a few on the edge, kind of ominously weak results from corporations.

2:22So the profit story had been great, and that is starting to wobble a little bit too. So what has fundamentally changed in investor thinking or in their assumptions? Well, investors have really been of two minds in recent months. at the same time as the stock market has kind of been working and going up and people are feeling good. And up until this week, the U S economy looked really quite firm. There's always this other side of investors views, which is policy coming out of Washington is very unpredictable. We don't like the tariff policy in particular and hope that it will continue to kind of soften.

3:08And for me, it's like the interplay between those two sides, the side that looks at how things are actually going and says things are going pretty well, and the side that says we're pretty darn nervous about policy. I'm glad you brought up tariffs because I wanted to ask where they fit into all of this. So, you know, Trump announced a raft of new tariff rates late last week. And even though there's still some big deals to be worked out, do investors have any more certainty when it comes to tariffs and trade? Well, I think the trend is towards knowing what is going on, which is it really looks like we are getting towards about a 15 percent average tariff rate.

3:50While that's not ideal, it's a lot better than was feared two months ago or three months ago. The question is, now that we've gotten to a point of increasing stability and increasing clarity on tariffs, that is happening just as we've gotten new evidence that the U.S. economy is getting worse. Everything in the economy and markets operates at a kind of lag. So it may be that we are now paying the price for the wild uncertainty of, you know, April and May. So the funny thing that's happening now is we are finally getting a certain level of clarity and predictability on tariff policy. But the wild uncertainty and ups and downs of two months ago may only now be showing up in the economic statistics.

4:46Rob Armstrong is the FT's U.S. financial commentator. He also co-hosts the FT's Unhedged podcast. Thanks, Rob. Thanks for having me on. It's going to be a fun week.

5:02As American sports brands move production out of China in an effort to steer clear of trade tensions between Washington and Beijing, a big European sports retailer says it may shift production into China. Intersport International is encountering increased competition for factory space in countries like Vietnam and Bangladesh, while in China, there's now surplus capacity. That's why its chief executive told the Financial Times that he's considering sourcing more of the company's private label goods from China. Those goods could then fill shelves in over 5 ,000 stores that Intersport operates in 40 countries around the world.

5:41Intersport is the largest sports retailer in Germany.

5:50Brazil is in a standoff with Donald Trump. The U.S. president threatened to impose 50 % tariffs on the country and also sanctioned a Brazilian judge over the trial of former President Jair Bolsonaro. Brazil's current president, Luiz Ignacio Lula da Silva, or Lula, says he's not going to negotiate over unacceptable demands. To unpack this feud, I'm joined now by the FT's Latin America editor, Michael Stott. Hi, Michael. Hello. Michael, why is Trump going after Brazil with tariffs and sanctions? I think what's important to underline here is that although Trump has imposed tariffs on lots of countries, Brazil is a special case.

6:31And it's a special case for two reasons. One, the severity of the measures. He's imposed much higher tariffs, 50 % in total, on a wide range of Brazilian products. than he has on other countries, and also because he's tied them to specifically political demands. And the political demands in this case relate to his political ally, Jair Bolsonaro, the former president. So Trump and Bolsonaro were very close politically when this was during Trump's first term, when Bolsonaro was Brazil's president. And Bolsonaro is now on trial before the Brazilian Supreme Court. And he's on trial on charges, very serious charges, of having plotted a coup and having plotted to assassinate Lula after losing the 2022 election to Lula.

7:17So what does Trump want Brazil to do? So Trump's described Bolsonaro's trial as a witch hunt, and he said it should end immediately. Of course, that's impossible for the government to agree, because in Brazil, as in most countries, the courts and the judiciary are independent of the government. So this is not something Lula's government could deliver, even if they wanted to. Trump has also made other demands. he said that there's unacceptable censorship of US social media companies, and that relates to rulings the Brazilian Supreme Court has made, which are among the most aggressive in the world in demanding that social media companies take down any posts that are deemed anti-democratic, hate speech or incitements to violence.

8:00In Trump's view, this amounts to unacceptable censorship of American companies, and he's demanding that the Supreme Court drop that too. So Trump's really getting involved in domestic issues in Brazil. How has Brazil's current president, Lula, how has he reacted to all of this? Lula has been quite measured so far. He's been firm in saying he rejects any political demands. He rejects interference in Brazil's justice system, that that's unacceptable. He has said he's willing to talk about trade issues, but only if they're trade issues, not about any political demands. And that strategy is working for him domestically.

8:36So he's also been wearing caps saying Brazil is for the Brazilians, stirring up a bit of nationalist feeling. And what some analysts are questioning is whether it will help him in the medium term. So if these tariffs go into effect and we get to the election next year and the economy is starting to hurt, that could be a problem for Lula. But that's still some way away. And the immediate concern of the government is to try to help sectors that are most affected by these tariffs. Let's say these sky-high tariffs do go into effect. What would it mean for Brazil's economy? Brazil's not as dependent on the US as some other countries like Mexico.

9:13So about 12 % of exports go to the US. The biggest trading partner for Brazil is actually China. So this doesn't affect Brazil's main market. And Brazil is also pursuing a strategy of diversifying its exports. It's looking for other countries to do business with. The Gulf countries, Saudi Arabia, have been a big focus. India is another one, Southeast Asia. So I think Brazil sees a lot of other options here apart from the U.S. for its trade. Michael Stott is the FT's Latin America editor. Thanks, Michael. Thank you.

9:52If the Netflix series Emily in Paris has you hankering to hop across the pond and shop at boutiques in the City of Lights, it's going to cost some travelers a lot more. That's because the U.S. dollar has plummeted more than 10 % against the euro this year. And what's tough for tourists is tough for luxury retailers. Major luxury brands saw their revenues drop in the first half of this year. And it's not just Americans buying less in Europe. Chinese tourists in Japan have reigned in their luxury purchases because of the stronger yen. Big luxury brands like LVMH and Prada have seen sales fall. and industry analysts who'd predicted 5 % growth in 2025 now expect revenues to drop.

10:38You can read more on all these stories for free when you click on 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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