By Libby George

LONDON (Reuters) – The new era of unpredictability, marked by tariff threats and rising global tensions, is prompting emerging market investors to look for shelter in frontier markets that are relatively safe from U.S. President Donald Trump’s trade policy shifts.

Trump’s return to the White House put Mexico’s peso on a roller coaster, further drained enthusiasm for foreign investing in China and cooled hopes of a golden era for emerging markets.

So-called frontier markets are the riskiest in EM and often smaller developing economies in Africa, Eastern Europe, Asia and even Latin America. They aren’t exactly a safe be but investors say they are strong investment destinations this year because they are not in Trump’s firing line for tariffs and other policy shifts.

Economies like Serbia have the added allure of sturdy growth, while for Ghana, Zambia and Sri Lanka, emergence from debt default allows them to focus on reforms and growth.

“The frontier markets are likely to be more insulated than the others, because I don’t think that countries like Nigeria or Sri Lanka or Paraguay … will be a target anytime soon for this administration,” said Thierry Larose, an emerging market portfolio manager with Vontobel. 

“They have their own idiosyncratic risk, but they’re pretty much immune to the risk-on risk-off affecting the mainstream emerging markets,” he said, calling them an “extremely powerful engine of diversification”.

For Anton Hauser, senior fund manager with Erste Asset Management, assets such as Serbian local bonds are good bets to capture strengthening economic growth in Eastern Europe. 

HIGH YIELD AND HIGH PERFORMANCE?

A riskier global climate often sends investors rushing for safe-haven assets such as U.S. Treasuries, gold or German government bonds. 

The COVID-19 crisis and the fallout from Russia’s invasion of Ukraine saw investors ditch frontier markets in their flight to safety; several of them tumbled into sovereign default. 

But the backdrop might be different with the famously mercurial Trump’s second presidency. 

Some of the riskiest debt bets – such as Argentine, Lebanese, Ukrainian and Ecuadorean international bonds – outperformed spectacularly last year.

Many expect similarly idiosyncratic stories – driven chiefly by local dynamics – to drive returns again over 2025.

“High yield has also done generally pretty well – it’s been doing well for a few months now,” said Nick Eisinger, co-head of emerging markets with Vanguard, adding: “We still think those are interesting parts of the market.”  

Like Larose, he cited frontier markets, notably in Africa, as “unlikely to be systematically influenced by geopolitical or global macro factors”.

Investors cited multiple other countries – many of which have struggled to attract foreign cash – including Egypt, Nigeria and the Dominican Republic – as good targets.

Zambia, Ghana and Sri Lanka, which recently emerged from debt restructuring deals, are also attractive bets this year, they said.

But there are some bright spots among larger, non-frontier emerging economies too, such as Turkey and South Africa.

Turkey has become a popular play for foreign cash since it returned to orthodox fiscal policy in 2023, and recently embarked on a rate-cutting cycle and could benefit from reconstruction in Syria and Ukraine.

South Africa, investors said, is less reliant on exporting to the United States, could benefit from falling oil prices and has a mix of commodity exports that could help it weather geopolitical turmoil.

“The few trades that… have surprised the last few weeks have been low beta, low correlation trades with the dollar,” said Marek Drimal, lead CEEMEA strategist with Societe Generale (OTC:SCGLY). “Turkey is a prime example. They’ve been doing quite alright.”

Drimal also cited bets on foreign exchange forwards in Egypt and treasury bills in Kenya.     

But it’s not a free pass for all emerging economies. 

JPMorgan downgraded its recommendation on Panama’s bonds after Trump ramped up his threat this week to “take back” the Panama canal.

Silver-lining stories from the previous Trump administration might be less lucky this time, too, especially those who benefited from diverted Chinese trade. 

“Mexico, Vietnam, Malaysia… will be more targeted,” said Magda Branet, head of emerging markets with AXA Investment Managers. “Trump will look to close these loopholes.”

Investing.com– U.S. President Donald Trump’s proposed trade tariffs against Colombia are now on hold after Bogota agreed to accept migrants deported from the U.S., the Associated Press reported on Sunday. 

Trump had threatened to impose 25% tariffs on all Colombian imports after the country refused two U.S. military planes carrying migrants from landing in the country. 

The Colombian government agreed to Trump’s terms of accepting illegal immigrants, and Trump’s proposed tariffs were now on hold, the AP reported, citing a statement from White House Press Secretary Karoline Leavitt.  

The U.S. President had threatened to impose a 25% duty on all Colombian imports, which was set to increase to 50% within a week. Colombia’s biggest exports to the U.S. are oil, coffee, gold, and flowers. 

By Yoruk Bahceli and Stefano Rebaudo

LONDON (Reuters) – The European Central Bank meets on Thursday for the first time since Donald Trump returned to office, leaving U.S. tariff threats looming over the euro zone’s sluggish economy and potentially complicating the economic outlook.

Traders reckon further rate cuts are a done deal, so the question is whether the ECB drops any new hints on the path ahead.

“They expect President (Christine) Lagarde to say the door to further rate cuts is open,” said Bruno Cavalier, chief economist at Oddo.

Here are five key questions for markets:

1/ What will the ECB do on Thursday?

Most likely, cut the key deposit rate by another 25 basis points to 2.75%.

Markets fully price the move and the ECB removed language from its guidance in December that had pledged to keep rates restrictive.

“There has been no change to the outlook since December,” said Pictet Wealth Management’s head of macroeconomic research Frederik Ducrozet.

2/ How does Trump’s return change ECB thinking on tariff risks?

It doesn’t so far, economists reckon.

U.S. President Trump did not impose day-one tariffs and said the U.S. is not ready for universal ones. However, he put Canada, Mexico and China in the firing line and complained about the terms of trade with the European Union.

Trump told the World Economic Forum in Davos via video last week that other economies will face tariffs if they make their products anywhere but the U.S.

While some analysts take comfort in the initial approach being more measured than expected, that could change.

For the ECB, it’s all about how tariffs impact euro zone inflation, whether directly or through their impact on demand.

Lagarde said last week the bank is not “overly concerned” about Trump’s policies exporting inflation to Europe — comments ABN AMRO (AS:ABNd) economists took to signal the ECB would see tariffs as mainly being negative for growth.

3/ How far does the ECB need to cut rates?

Traders expect almost four rate cuts from the ECB this year and some policymakers have explicitly agreed, pointing to rates falling towards 2%.

That would put rates within estimates of the so-called neutral rate, which neither restricts nor accommodates growth.

But some hawks sound more cautious on the pace, with top hawk Isabel Schnabel recently warning that the bank needs to have a “deep think” on how far and quickly to cut.

Once rates reach 2.5% “they will have to think a bit harder to decide where to go”, said PIMCO portfolio manager Konstantin Veit.

But given a weak economy, the risk is skewed towards rates falling to 1.75%, he added.

Lagarde said last week the neutral level was anywhere between 1.75% and 2.25%.

4/ How worrying is the uptick in inflation for the ECB?

Not very, economists reckon.

Inflation rose to the highest since July at 2.4% in December, driven by higher energy prices and costs in services, where inflation isn’t budging from 4%.

Yet the rise is in line with the bank’s expectations and chief economist Philip Lane is confident wage growth is slowing and will quickly pull services inflation lower.

He has also warned keeping rates too high for too long could push inflation below target.

While the ECB only targets inflation, as it nears 2%, “it’s not as simple as just being a single mandate because after all, growth is important if you want to see where inflation is going to go,” said Danske Bank (CSE:DANSKE) chief analyst Piet Christiansen.

5/ What if the Fed stops cutting rates?

The ECB could slow its cuts, but it depends on the reason.

Traders’ Fed rate cut bets have swung in January given uncertainty around the U.S. inflation outlook.

BofA and BNP Paribas (OTC:BNPQY) expect the Fed to stay on hold this year.

“If they don’t cut because the economy is strong in the U.S., it’s also good news for Europe…. the ECB could actually be tempted to cut a little bit less,” Pictet’s Ducrozet said.

“If they don’t cut because of a stagflation kind of scenario, then it’s a different story and I don’t think it makes a big difference for the ECB,” he said, noting a fall in the euro to parity, from almost $1.05 at present, would not be a big focus.

A look at the day ahead in European and global markets from Kevin Buckland

For two years, investors and analysts have pondered what – if anything – could take some of the steam out of the AI stocks rally. China may have just come up with the answer.

Futures in the tech-centric U.S. Nasdaq Composite index had tumbled 1.8% by around midday Monday in Asia, as investors weighed the implications of Chinese startup DeepSeek’s release of a rival to ChatGPT that it claims is cheaper and may on some metrics be better. Pan-European STOXX 50 futures slipped half a percent.

Trump was also roiling currency markets again at the start of the week, hitting Colombia with punitive levies and sanctions for turning away military planes carrying deported migrants. Just hours later, Washington was announcing an about-face from Bogota, which agreed to all of Trump’s terms.

Colombia’s peso hadn’t traded in Asian time but Mexico’s currency slid as much as 1.2% and Canada’s loonie weakened 0.3%. The offshore yuan eased 0.4%.

Compared with Trump’s strong-arm tactics over immigration, however, his approach to China so far has been more nuanced. Although he has threatened 10% tariffs from Feb. 1, that was a far cry from the 60% duties he pledged on the campaign trail and less even than the 25% levies that neighbours Canada and Mexico may face on the same date.

Maybe it’s the rekindled bromance with Xi Jinping: Trump went so far as to say he’d rather not resort to tariffs in dealing with Beijing, after what he called a “good, friendly conversation” with China’s leader by phone earlier this month.

As for DeepSeek’s roiling of tech share prices, the jury is still out on how much of a threat it may actually pose to its U.S. rivals, but market players look like they’d rather sell first and hear the verdict later.

Ironically, it’s a challenger of America’s own making, after years of chip-related sanctions and now renewed tariff threats under President Donald Trump, which encouraged a self-sufficiency push by Beijing that is now bearing fruit.

Trump has made no mention of the potential threat to his own half-trillion-dollar AI initiative but traders may be keeping a close eye on his Truth Social account.

The DeepSeek news could also focus more attention than usual on Big Tech’s quarterly health check this week, with four of the so-called Magnificent Seven reporting financial results: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Facebook-owner Meta Platforms (NASDAQ:META) and Tesla (NASDAQ:TSLA).

Also this week, a host of central banks globally will set policy, including the Fed on Wednesday and the ECB a day later.

For Asia, though, a lot of this happens in the vacuum of lunar new year holidays. Mainland Chinese bourses will be closed from tomorrow through Tuesday of next week.

Other developments that could influence markets on Monday:

-Germany ifo surveys (Jan)

-UK Nationwide house prices (Jan)

-ECB President Lagarde speaks at Holocaust remembrance event in Frankfurt

(By Kevin Buckland; Editing by Edmund Klamann)

BEIJING (Reuters) – Chinese startup DeepSeek’s AI Assistant on Monday overtook rival ChatGPT to become the top-rated free application available on Apple (NASDAQ:AAPL)’s App Store in the United States.

Powered by the DeepSeek-V3 model, which its creators say “tops the leaderboard among open-source models and rivals the most advanced closed-source models globally”, the artificial intelligence application has surged in popularity among U.S. users since it was released on Jan. 10, according to app data research firm Sensor Tower.

The milestone highlights how DeepSeek has left a deep impression on Silicon Valley, upending widely held views about U.S. primacy in AI and the effectiveness of Washington’s export controls targeting China’s advanced chip and AI capabilities.

AI models from ChatGPT to DeepSeek require advanced chips to power their training. The Biden administration has since 2021 widened the scope of bans designed to stop these chips from being exported to China and used to train Chinese firms’ AI models.

However, DeepSeek researchers wrote in a paper last month that the DeepSeek-V3 used Nvidia (NASDAQ:NVDA)’s H800 chips for training, spending less than $6 million.

Although this detail has since been disputed, the claim that the chips used were less powerful than the most advanced Nvidia products Washington has sought to keep out of China, as well as the relatively cheap training costs, has prompted U.S. tech executives to question the effectiveness of tech export controls.

Little is known about the company behind DeepSeek, a small Hangzhou-based startup founded in 2023, when search engine giant Baidu (NASDAQ:BIDU) released the first Chinese AI large-language model.

Since then, dozens of Chinese tech companies large and small have released their own AI models, but DeepSeek is the first to be praised by the U.S. tech industry as matching or even surpassing the performance of cutting-edge U.S. models.

By Andy Bruce

(Reuters) – A clear majority of British businesses look set to cut the size of pay awards for staff in response to coming tax hikes and they remain pessimistic about the outlook for the economy, two surveys showed on Monday.

Data provider Incomes Data Research said 69% of employers it canvassed were extremely or moderately likely to reduce pay awards to offset an increase in payroll taxes announced by finance minister Rachel Reeves in her first budget last October.

More than half of those respondents said they were “extremely likely” to slow their pay increases.

The survey sheds light on a key uncertainty facing the Bank of England ahead of its Feb. 6 interest rate announcement.

The BoE is trying to gauge whether employers will react to the tax hike by cutting jobs, wages or profits, or by raising prices.

Most investors and economists think the central bank is likely to cut interest rates by a quarter point next week but the picture for the rest of the year is less clear.

A separate survey published on Monday by the Confederation of British Industry showed companies were only slightly less pessimistic about the coming three months than they were in December.

The CBI’s growth indicator – which measures expectations among businesses across manufacturing and services, including retail – barely rose in January to -22 from a more than two-year low of -24 in December.

“After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity,” said Alpesh Paleja, interim chief economist at the CBI.

“Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers.”

Reeves has said her tax increases are a one-off to put the public finances on a stable footing while raising funds for services and investment. She is expected to make a speech this week on her plans to speed up Britain’s slow economy.

One third of employers in the IDR survey said they were likely to make redundancies while 45% said they would absorb the impact of tax increases through reduced profits or other means.

IDR said 37% of employers planned to award pay rises of between 2.0% and 2.99% this year, while 43% predicted pay rises of between 3.0% and 3.99%. Only 14% expected 4% or more, offering some relief to the BoE which is worried about lingering inflation pressures in the economy.

IDR surveyed 168 employers covering 1.2 million workers in November and December. The CBI report covered 990 companies who were surveyed between Dec. 19 and Jan. 14.

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar firmed on Monday as traders pondered the ramifications of U.S. President Donald Trump’s tariff plans at the start of a week where the Federal Reserve is widely expected to hold interest rates steady.

The dollar clocked its weakest week since November 2023 last week on ebbing fears of tariffs from the Trump administration, but those worries resurfaced after he said he will impose sweeping measures on Colombia.

The retaliatory moves, including tariffs and sanctions, comes after the South American country turned away two U.S. military aircraft with migrants being deported as part of the new U.S. administration’s immigration crackdown.

That led to the Mexican peso, a barometer of tariff worries, sliding 0.8% to 20.426 per dollar in early trade. The Canadian dollar was a bit weaker at $1.43715.

The euro was 0.14% lower at $1.0474 ahead of the European Central Bank policy meeting this week where the central bank is expected to lower borrowing costs. Sterling last fetched $1.24615.

That left the dollar index, which measures the U.S. currency against six units, at 107.6, still close to the one-month low it touched last week.

Investor focus this week will be on the central banks and how policymakers are likely to react after Trump said he wants the Federal Reserve to cut interest rates.

The Fed is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, though investors will be watching for any clues that a rate cut could come in March if inflation continues to ease closer to the U.S. central bank’s 2% annual target.

Data on Friday showed that U.S. business activity slowed to a ninth-month low in January amid rising price pressures, while separately U.S. existing home sales increased to a 10-month high in December.

“Optimism has surged about Trump’s growth-friendly America First agenda, inflationary pressures have intensified to a four-month high, and businesses are taking on employees at the quickest pace since 2022,” said Kyle Chapman, FX markets analyst at Ballinger Group.

“That picture is suggestive of a reheating labour market, and strongly supportive of an extended pause at the Fed.”

In other currencies, the Australian and New Zealand dollars were slightly lower but remained closer to their one-month highs touched last week. The Australian markets are closed for the day.

The Japanese yen strengthened nearly 0.4% to 155.41 per dollar in early trading after the Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis and revised up its inflation forecasts.

BOJ Governor Kazuo Ueda said the central bank will keep raising interest rates as wage and price increases broaden but offered few clues on the timing and pace of future rate hikes.

Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said the renewed attention back on the Japan story could provide a catalyst for the yen to appreciate in the weeks ahead.

“The Japanese currency remains extremely undervalued on most valuation models and, as interest rate differentials narrow, we think that this will help the yen perform better in 2025.”

WASHINGTON – President Donald Trump on Sunday issued an executive order establishing a review council for the Federal Emergency Management Agency, just days after he floated shuttering the agency whose resources are strained following multiple weather-related disasters and which is burdened by past failures in handling massive storms.

Last Friday, the Republican president floated the idea of shuttering FEMA during a trip to disaster areas in North Carolina and California, hit by a hurricane and massive wildfires.

    WHAT IS FEMA?    The federal agency’s mission is to help people before, during and after disasters, including hurricanes, tornadoes, earthquakes and floods. FEMA brings in emergency personnel, supplies and equipment to stricken areas.

Its reputation was battered by its poor handling of Hurricane Katrina in 2005, and the agency has struggled to recover. Trump criticized FEMA on the campaign trail and since taking office on Monday.     FEMA has a workforce of 20,000 people that can swell to more than 50,000 active members during major disasters, according to its website. It has 10 regional offices and the capacity to coordinate resources from across the federal government.    Officially created in 1979, it became part of the Department of Homeland Security in 2004.

TRUMP CRITICISM

Trump has accused FEMA of bungling emergency relief efforts in North Carolina and said he preferred that states be given federal money to handle disasters themselves. During a visit Friday, he said the agency should be fundamentally reformed or even scrapped.

“FEMA has turned out to be a disaster,” he said during a tour of a North Carolina neighborhood destroyed by September’s Hurricane Helene. “I think we recommend that FEMA go away.”

Trump also criticized California’s response to recent wildfires that devastated Los Angeles, but he pledged during a visit to work with California Governor Gavin Newsom and offered help to L.A. Mayor Karen Bass. 

     FEMA STAFFING    FEMA says it is currently supporting 108 major disasters and 10 emergency declarations. According to its daily operations briefing, 17% of its disaster-response workforce is available. 

After Trump said he wanted to overhaul or scrap FEMA, the agency’s acting head Cam Hamilton wrote to staff and assured them that “FEMA is a critical agency which performs an essential mission in support of our national security.” Hamilton is a former Navy SEAL Trump appointed to temporarily lead the agency after the Republican president took office last week.

         FEMA FUNDING

Funding for the agency has soared in recent years as extreme weather events boosted demand for its services. The agency received $29 billion from Congress in December to fund ongoing relief efforts.

A FEMA spokesperson told Reuters last week the agency has not received additional funding to reimburse states for ongoing recovery efforts after Hurricane Helene devastated North Carolina and the U.S. Southeast in late September.

There has been no presidential action or congressional appropriation under the current Trump administration to provide additional funds to FEMA for hurricane recovery efforts, and no credible reports of such funding.

         DISINFORMATION CAMPAIGN    While responding to real-life disasters, FEMA has also battled a slew of false rumors about how its funds have been used. Before his re-election, Trump and his Republican allies accused former President Joe Biden and Vice President Kamala Harris, the Democratic candidate for president, of using federal emergency money to help people who were in the country illegally. U.S. Representative Marjorie Taylor Greene went as far as to say government officials control the weather.

FEMA has been the target of so many falsehoods it has set up a rumor response page on its website to tamp them down.     One entry addresses the accusation that FEMA diverted funs to the border.

“This is false. No money is being diverted from disaster-response needs. FEMA’s disaster-response efforts and individual assistance is funded through the Disaster Relief Fund, which is a dedicated fund for disaster efforts. Disaster Relief Fund money has not been diverted to other, non-disaster related efforts.”         FEMA FAILURES    The agency has been criticized for emergency responses to hurricanes that fell short, including Hurricane Maria in Puerto Rico in 2017. Residents accused then-President Trump of being slow to dispatch aid after Maria and clumsy in his public remarks once it was clear the U.S. territory had been devastated.         In 2005, Hurricane Katrina battered New Orleans and flooded parts of the city as residents crowded into ill-prepared shelters.     Katrina devastated the Gulf of Mexico coast and caused more than 1,800 deaths. It also shattered the reputation of FEMA, which was sharply criticized for its response.