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Mission Grey Daily Brief - October 01, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains complex, with ongoing conflicts, escalating tensions, and natural disasters impacting various regions. Israel's airstrikes in Lebanon have resulted in mass migration and widespread condemnation, while the killing of Hezbollah's leader has sparked mixed reactions across the Middle East. The US and South Korea showcase military might in a joint parade, and China criticizes US missile deployment in the Philippines. Trinidad and Tobago calls for an end to the Cuba embargo, and Nepal faces deadly floods and landslides. Türkiye's economic recovery continues, and Mali's Russia-backed regime arrests employees of a major mining company, increasing tensions.

Israel-Lebanon Conflict Escalates

The conflict between Israel and Lebanon has escalated, with Israel expanding its attacks on Beirut and killing dozens, including the leader of Hezbollah, Hassan Nasrallah. This has led to mass migration, with thousands fleeing to Syria, and widespread international condemnation. Protests have erupted globally, with Australia seeing particularly large demonstrations against Israel's actions. The UN General Assembly has adopted a resolution calling for an end to Israel's illegal occupation of Palestinian territories, while also expressing support for Lebanon. The situation has caused a diplomatic rift, with many UN delegations walking out of Israeli Prime Minister Benjamin Netanyahu's speech. The conflict has also impacted Syria, with some celebrating Nasrallah's death and blaming him for instability, while others offer support to displaced Lebanese citizens. The potential for a wider Middle East conflict remains, with Hezbollah vowing revenge and Israel mobilizing additional forces, raising fears of a ground incursion into Lebanon.

US-South Korea Military Parade

The United States and South Korea held a large-scale military parade in Seoul, showcasing their military might. The event commemorated the founding of South Korea's military and featured over 5,000 South Korean troops, US troops, and advanced military equipment. This display of force comes amid rising tensions in the region, particularly with North Korea, and sends a strong message of solidarity and deterrence.

China-US Tensions in the South China Sea

China's Foreign Minister Wang Yi criticized the US deployment of intermediate-range missiles in the Philippines, stating that it "undermines regional peace and stability." The missiles, located in Luzon, are capable of striking targets in mainland China and have been a source of tension for several months. China has repeatedly protested the deployment and accused the US of destabilizing the region. The Philippines has defended its decision, citing the need to counter China's growing maritime assertiveness and stating that the missiles serve as a valuable deterrent. This incident highlights the complex dynamics in the South China Sea, with territorial disputes and competing interests among various countries, including China, the Philippines, Vietnam, and the US.

Trinidad and Tobago Calls for End to Cuba Embargo

Trinidad and Tobago's Minister of Foreign Affairs, Dr. Amery Browne, addressed the UN General Assembly, expressing support for Haiti's self-determination and calling for an end to the long-standing US embargo on Cuba. He emphasized the negative impact of the embargo on Cuba's economic stability and development, stating that it has caused pain and suffering for the Cuban people. Browne also highlighted the need for effective climate finance to support vulnerable nations and addressed issues of global inequality, particularly regarding women's rights.

Deadly Floods and Landslides in Nepal

Nepal has been grappling with deadly floods and landslides triggered by persistent downpours since September 27. The death toll currently stands at 66, with 69 missing and 60 injured. The capital, Kathmandu, has been severely impacted, with major roads closed and domestic air travel disrupted. The situation has affected the entire Himalayan nation, with most rivers swollen and spilling over roads and bridges. Rescue and relief efforts are underway, but the rains are expected to continue, potentially leading to further devastation.

Türkiye's Economic Recovery

Türkiye's economic program is showing signs of recovery, with improved ratings from international companies and a drop in credit default swaps. Vice President Cevdet Yılmaz expressed optimism, noting that inflation has decreased significantly and food prices have declined. The country has entered a disinflation period, and the government is implementing projects to boost food supply and encourage youth engagement in agriculture. While the impacts of the 2023 earthquakes cannot be overlooked, Yılmaz stated that the government maintained budget discipline and allocated significant funds for relief efforts. Türkiye's exports are projected to increase, and the country expects foreign direct investments to rise.

Tensions Rise in Mali as Employees Arrested

Tensions have escalated between Mali's Russia-backed military regime and the Toronto-based mining company, Barrick Gold Corp. Four senior Malian employees of Barrick have been arrested on alleged financial crimes, with courts demanding high bail payments. Barrick is a significant investor and gold producer in Mali, and the arrests come amid the regime's push for greater control of the mining sector. The company has faced mounting pressure, with the junta targeting the industry through audits and a new mining code.


Further Reading:

'Hands off Lebanon, Hands off Gaza', demand protesters across Australia - Green Left

American troops, aircraft in line for South Korea’s massive military parade - Stars and Stripes

An airstrike hits a Beirut residential building as Israel expands attacks in Lebanon - NPR

Browne: Trinidad and Tobago supports Haiti’s self-determination, end to Cuba embargo - TT Newsday

Chinese FM Criticizes US Missile Deployment in the Philippines - The Diplomat

Crew of Vietnamese fishing boat injured in an attack in the South China Sea, state media say - ABC News

Economic program works, risks declining, says VP Yılmaz - Hurriyet Daily News

Floods, landslides kill at least 66 in Nepal, including 6 players from national football academy - The Straits Times

Four Barrick employees arrested in Mali by Russia-backed military regime - The Globe and Mail

Ground report: Syrian refugees in Lebanon return home as Israel pounds Hezbollah - India Today

Hezbollah leader Hassan Nasrallah killed by Israeli airstrike in Lebanon's capital Beirut - CBS News

Hezbollah leader's killing sparks joy and rage across the Middle East - NPR

Themes around the World:

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US-Israel Relations

The US has threatened to cut military aid to Israel if it does not improve the humanitarian situation in Gaza within 30 days. This warning is a significant step up in pressure and puts US military aid in jeopardy. The US is Israel's largest supplier of arms, and any reduction in support could impact Israel's military capabilities and ongoing conflicts.

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Defense Spending

The UK government is expected to release its Strategic Defense Review in mid-2025, with plans to increase defense spending to 2.5% of GDP. Lockheed Martin is lobbying for a larger UK purchase of F-35 fighter jets, citing economic benefits, while the UK also faces a potential arms deal with Italy and Japan.

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High-Speed Rail Competition

France has opened its high-speed train market to competition, with domestic and international operators offering alternatives to the national carrier SNCF. This will improve accessibility and comfort for passengers, but there are concerns about the impact on scheduling and pricing.

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Economic Growth Strategies

The UK government's new industrial strategy aims to address economic uncertainty and achieve growth. It focuses on infrastructure, clean energy, and AI investments, but Brexit and geopolitical tensions are largely unaddressed, and there are concerns about regional inequality.

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Cybersecurity Threats

The UK faces increased cyberattacks from state-sponsored threat actors, particularly Russia and China, targeting critical national infrastructure and digital supply chains. The new Cyber Security and Resilience Bill aims to address these threats, in line with the UK's commitment to NATO's digital security.

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US-Israel Relations

The US is sending warships, bombers, troops, and a missile defense system to the Middle East amid escalating tensions between Israel and Iran. The US encouraged restraint in Israel's strikes and aims to de-escalate through diplomacy.

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Automotive Sector Challenges

The automotive sector in France is facing challenges due to a wave of plant closures and a sharp drop in sales of electric vehicles, partly attributed to competition from China. This has resulted in job losses and given rise to debates about the pace of electrifying the car fleet and the impact of European regulations. There are concerns about the accessibility and affordability of electric vehicles for the working and middle classes, as well as their ability to meet emission reduction targets.

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Medicinal Supply Shortages

Germany is facing shortages of medicines, particularly antibiotics and children's medications, with saline solution being the latest addition to the list. This is due to the majority of active ingredients being produced in China and India, where environmental regulations are less stringent, and supply chains being longer and prone to disruptions. The consequences include increased treatment time and potential risks to the quality of treatment.

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Hydrogen Energy Transition

Thailand signed an MoU with Mitsubishi Heavy Industries to explore hydrogen co-firing technology for gas turbine power production. This supports Thailand's goal of carbon neutrality by 2050 and net-zero emissions by 2065. However, there are concerns about the risks and economic viability of underground hydrogen storage.

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Export Ban Impact

Ukraine's export ban on military goods has helped local defense companies grow but is now hurting their business. Lifting the ban could generate revenue but risks Russian forces obtaining sensitive information and technology.

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Thailand's Energy Transition

Thailand is exploring hydrogen underground injection with Mitsubishi Power to contribute to a greener environment and enhance technology. This supports Thailand's goal of carbon neutrality by 2050 and net-zero emissions by 2065. However, underground hydrogen storage presents risks, including the possibility of explosions due to hydrogen's flammability. The project also requires costly infrastructure, and Thailand may face serious economic repercussions if it fails.

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Taxation and Budget

The UK's Labour government's tax-raising budget, including increases to National Insurance and capital gains tax, aims to fill a fiscal gap. However, businesses warn that these measures could hurt hiring, push up inflation, and impact their ability to invest and grow.

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US Presidential Election

The close race between Donald Trump and Kamala Harris is impacting markets, with Trump's potential victory seen as inflationary and detrimental to global trade. The election outcome will shape economic policies and international relations, affecting investment strategies and business operations.

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Scams and Fraud

Scams are a significant issue in Thailand, with over 89% of respondents in a survey reporting exposure to scams monthly. Online scams have resulted in substantial financial losses, impacting individuals and the country's economy. Efforts to combat scams include collaborations between private and public sectors, as well as the development of anti-scam technologies and early warning systems.

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US-China Competition

The US and China are engaged in a multidimensional competition, with economic growth, military aspects, and supply chain disruptions as key dimensions. China's lead in battery technology and production, and its super deduction for R&D impact the US's ability to compete.

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Economic Stimulus Measures

China has announced fiscal stimulus measures to support its economy, including cutting lending rates, lowering cash reserve requirements, and providing liquidity to the stock market. However, there are concerns that these measures may not be enough to boost consumer confidence and address the property market crisis, with some calling for more direct aid to consumers.

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UK's Tax Policies and Budget

The UK's Labour government has introduced a tax-raising budget, including increases to the National Insurance payroll tax and capital gains tax, to fill a fiscal gap. While this may boost economic growth, there are concerns that it will hurt hiring, push up inflation, and impact small and medium-sized businesses. The budget also includes measures to support the transition to EVs and critical mineral supply chains.

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Sustainable Finance Push

Thailand is implementing a classification system for economic activities based on their environmental sustainability. The system categorizes activities as green, yellow, or red, with green activities offering innovative financial products like green bonds and loans. While there is high demand for sustainable financial products, the supply falls short of the estimated annual need of 400-500 billion baht in investments for industries facilitating the transition to sustainability.

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Foreign Investment and M&A Activity

Despite the ongoing war, Ukraine is witnessing growing foreign investment and mergers and acquisitions (M&As). In the first nine months of 2024, there were 36 M&As worth $643 million, compared to 28 deals worth $494 million in 2022. Foreign investors are seeking opportunities in sectors like agri-tech and telecoms, with companies from North America, Europe, and the Middle East leading the way.

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Wage Hike Pressures

Prime Minister Shigeru Ishiba's pledge to significantly raise Japan's national average wage aims to counter rising food and energy costs due to inflation and a weak yen. However, this move has faced criticism from small businesses, who fear it may hurt their operations and lead to bankruptcies, especially in regional economies.

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UK's Relationship with Russia

The UK has escalated its sanctions against Russia's covert seaborne oil exports, targeting a 'shadow fleet' of oil tankers. This has been done in coordination with other countries to curtail Russia's ability to bypass sanctions and sustain its war efforts. The UK has also sanctioned LNG vessels and Russia's energy sector, putting pressure on Russia's energy industry and revenue streams.

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US Election Impact

The upcoming US presidential election creates uncertainty for businesses, with some postponing investment plans. A potential Trump victory is seen as inflationary, affecting global trade and equity markets. The election outcome will influence US policies and economic relations with other countries.

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UK's Industrial Strategy

The UK government's new industrial strategy aims to steer the country's economy through global economic uncertainty, with a focus on growth and addressing regional inequality. The strategy includes investments in infrastructure, research and development in emerging technologies, and support for key sectors like advanced manufacturing and clean energy. However, there are concerns about the lack of consideration for geopolitics and Brexit, and support for traditional industries.

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Tech Hub Status

Thailand has become an attractive destination for Big Tech investment, with companies like Google, Amazon, and Microsoft investing millions. The country's Board of Investment (BOI) has approved $2 billion in new investments in electronics manufacturing and data centers, reinforcing its status as a regional tech hub.

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Automotive Industry Struggles

German carmakers like Volkswagen, BMW, and Mercedes-Benz face challenges due to pressure from the US to increase production there, potentially impacting their supply chains and profitability. They also struggle with weak sales, slow expansion in the electric vehicle (EV) sector, and competition from Chinese manufacturers.

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US-China Tech Race

China has dominated the battery industry for over a decade, while the US lags with limited competitiveness. China controls the supply chain for lithium-ion batteries, but the US aims to secure next-generation technology with solid-state batteries, investing heavily in domestic production.

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Economic Impact of War

Israel's war against Hamas and Hezbollah militant groups has resulted in high financial costs, with military spending increasing significantly. This has led to concerns about declining investment, higher taxes, and a strain on government budgets. The conflict has also disrupted the tourism industry and hindered economic growth, particularly in border areas.

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Digital Services Tax Hike

France is considering increasing its Digital Services Tax (DST) from 3% to 5%, which could negatively impact its economy and trade relations. This move may hinder growth in the professional and business services sector, affecting small and medium-sized businesses that rely on digital trade. Additionally, it could inflame tensions with the US, leading to retaliatory tariffs, and undermine global tax talks, setting a destabilizing precedent for other countries.

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Seaborne Trade Resilience

Despite intensified rocket attacks on Ukrainian ports and civilian ships, seaborne trade in Ukraine remains resilient. Maersk has resumed regular service to Ukraine, launching a new weekly container service. This move signals a commitment to enhancing efficiency and interaction with customers in the Ukrainian market, even amidst challenges such as high insurance premiums and vessels turning off AIS signals in Ukrainian waters.

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Energy Transition

Germany is transitioning to green energy, attracting investments. However, the shift away from cheap Russian energy has impacted its industries, and the country faces energy shortages.

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Thailand's Economic Transition

Thailand is transitioning its economy towards environmentally sustainable practices. The United Nations estimates an annual investment need of 400-500 billion baht in industries facilitating this transition. The Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC) are implementing a classification system, with activities categorized into green, yellow, and red based on their environmental impact. This provides clarity for investors and has led to the introduction of green financial products such as green bonds and loans.

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Resilience of Ukraine's Seaborne Trade

Despite intensified rocket attacks on civilian ships and ports, Ukraine's seaborne trade remains resilient. Companies like Maersk and Hapag-Lloyd have resumed or continued operations, signaling a bold move to enhance efficiency and interaction with the Ukrainian market. This comes with increased risks and costs, including high insurance premiums and concerns about the safety of vessels in Ukrainian waters.

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Supply Chain Challenges

Germany's heavy reliance on raw material and rare metal imports from China leaves it vulnerable to supply chain disruptions. The country is taking steps to reduce this dependence, but it still faces challenges in securing enough supply to meet rising demands, particularly in the cannabis and automotive sectors.

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Challenges in Traditional Industries

Japan's traditional industries, such as bookshops, are facing significant challenges. Rising costs, cashless transaction fees, and competition from e-commerce and digital alternatives are threatening their survival. The decline in reading among Japanese citizens further exacerbates these issues.

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Humanitarian Crisis in Gaza

The ongoing conflict has resulted in a dire humanitarian crisis in Gaza, with reports of food, water, and medical supply shortages, as well as overcrowding and the risk of lethal contagion. The situation has been further exacerbated by Israeli restrictions on humanitarian movements and the potential banning of the UN relief agency, Unrwa, from operating in Israel.

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BRICS Summit and US Dollar Reliance

A BRICS summit led by Putin aims to establish a new payment platform to reduce reliance on the US dollar. This comes amid concerns over Elon Musk's $1 million daily giveaway to voters, which has prompted calls for a law enforcement investigation.