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Mission Grey Daily Brief - October 17, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains volatile, with several geopolitical and economic developments that could impact businesses and investors. The Moldova election and EU membership referendum are under threat of Russian interference, while Canada-India relations are strained due to allegations of Indian government involvement in the assassination of a Sikh separatist leader in Canada. Ukraine continues to call for US support in its war against Russia, and Taiwan is preparing for a potential Chinese invasion. Meanwhile, Vietnam's economic growth is expected to reach 6.1% by the end of 2024, making it a top choice for foreign investment.

Russia's Interference in Moldova's Election and EU Membership Referendum

The upcoming presidential election and EU membership referendum in Moldova are under threat of Russian interference, with the US accusing Russia of attempting to undermine the vote. Police have raided the office of a pro-Russian bloc, the Victory bloc, amid allegations of election fraud. The bloc was established in Moscow and consists of five parties controlled by a fugitive oligarch, Ilan Shor. The Central Election Commission denied the bloc's registration for the election and referendum due to the similarity of the bloc's name to one of its member parties and the inclusion of a banned party within the bloc.

This situation highlights the ongoing tensions between Russia and the West, and the potential for Russian interference in democratic processes. Businesses and investors should monitor the situation closely, as it could have implications for the EU's relationship with Moldova and the stability of the region.

Canada-India Diplomatic Fallout

Canada-India relations are strained due to allegations of Indian government involvement in the assassination of a Sikh separatist leader in Canada. Canada has expelled six Indian diplomats, and India has responded in kind, pushing bilateral ties to a near-breaking point. The UK, US, Australia, and New Zealand have backed Canada in the investigations, with the US State Department criticising India's stance on the allegations.

This diplomatic fallout could have implications for businesses and investors with interests in both countries. It is essential to monitor the situation and be prepared for potential disruptions to trade and investment.

Ukraine's Call for US Support

Ukraine continues to call for US support in its war against Russia, with Oleksandra Matviichuk, a human rights lawyer and Nobel Peace Prize winner, urging the US to send missiles to Ukraine. Matviichuk argues that global freedom and human rights are under attack, and Ukraine is on the front line of protecting democracies and civil liberties. She warns that if Russian President Vladimir Putin succeeds in his vision of recreating the Russian empire, neighbouring countries in Europe are next, which could lead to conflict with NATO member countries and the deployment of US troops.

The situation in Ukraine remains a significant concern for businesses and investors, particularly those with operations or investments in the region. The ongoing war and potential for escalation highlight the importance of risk assessment and contingency planning.

Taiwan's Preparations for a Potential Chinese Invasion

Taiwan is preparing for a potential Chinese invasion, with citizens being instructed to have go-bags ready and be prepared to fight. China claims sovereignty over Taiwan and has conducted military drills near the island, with US intelligence reports suggesting an invasion could happen as early as 2027. Taiwanese factories supply around 80% of the world's semiconductors, so an invasion would have ramifications beyond Taiwan's borders, shattering the fragile peace in the South China Sea and impacting the region.

Businesses and investors with operations or investments in Taiwan should be aware of the potential risks and have contingency plans in place. The situation highlights the importance of supply chain resilience and the need to monitor geopolitical developments closely.


Further Reading:

Beware fake news and be ready to resist: how Taiwanese citizens are preparing for a Chinese invasion - The Independent

Opinion: I won the Nobel Peace Prize. Now I'm asking the US to send missiles to Ukraine. - USA TODAY

Police raid pro-Russian Victory bloc's office in Moldova amid alleged election fraud - Espreso. Global

Russia working to undermine Moldova vote: US - wnbjtv.com

UK joins US and Australia in backing Canada over India assassination row - The Independent

What is behind Vietnam's economic success story? - DW (English)

Themes around the World:

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Challenges in Accessing Finance

German firms are facing challenges in securing loans due to economic uncertainty and hesitancy from banks. The Credit Constraint Indicator, measuring access to bank loans, is at its highest level in seven years. This is limiting business investments and job creation, negatively impacting economic growth. Germany's economy minister expects the economy to shrink by 0.2% this year, marking the second year of contraction.

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Reshoring Medicine Production

The French government is promoting strategic objectives of reshoring medicine production and keeping manufacturing jobs in the country. This is evident in the sale of Sanofi's Opella to a US investment fund, where the government secured guarantees for production and jobs to remain in France. The government is also taking steps to invest in domestic pharmaceutical production, as seen during the COVID-19 pandemic, to ensure the availability of critical medicines and boost local manufacturing.

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US Election Impact

The upcoming US presidential election is causing uncertainty for businesses, with some postponing or canceling investment plans. The election is also influencing market volatility, with Donald Trump's gains in betting markets and polls impacting equities, the dollar, and expectations for economic policies.

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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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US Election Impact

The upcoming US presidential election between Kamala Harris and Donald Trump is impacting markets, with Trump's potential victory seen as inflationary and affecting global trade. Trump's proposed tariffs on imports may increase prices and anger US allies, while his economic proposals may add to the US deficit. Harris's plans are expected to have a lesser impact.

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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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US Military Aid and Pressure

The US, Israel's major ally and biggest supplier of arms, has threatened to cut military support if Israel does not improve humanitarian aid access to Gaza within 30 days. This pressure could jeopardize US military aid to Israel, though similar threats in the past have not stopped the flow of weapons. The US has also agreed to send Israel a missile defense system to deter Iranian ballistic missile attacks.

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US-China Geopolitical Tensions

China's military drills near Taiwan and its support for Russia's invasion of Ukraine have heightened tensions with the US. The potential for a wider conflict, especially over Taiwan, could disrupt global supply chains and chip manufacturing, impacting businesses.

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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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General Election Impact

Japan's upcoming general election on October 27 may impact the country's economic policies and market performance. There is uncertainty about the outcome, with the possibility of PM Ishiba's new government losing control of parliament. The election also contributes to the cautious stance of the Bank of Japan (BoJ) regarding further interest rate hikes in 2024.

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Humanitarian Crisis in Gaza

The ongoing conflict and bombardment in Gaza have resulted in a dire humanitarian crisis, with limited access to food, water, and medical care. Israel is considering the use of private security contractors for aid delivery, but critics argue that this could be seen as a tactic to drive out the Palestinian population.

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Digital Services Tax Hike

France's proposed increase in the Digital Services Tax (DST) from 3% to 5% could damage its economy, inflame trade tensions with the US, and hinder international tax negotiations. It may particularly affect small and medium-sized businesses and digital trade, and provoke retaliatory tariffs from the US.

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Global Manufacturing Decline

The global manufacturing industry is weakening, with declining activity in major regions like the US, Eurozone, and China. This is indicated by falling purchasing managers' indices (PMIs), especially in Germany. However, some regions like the UK, India, and Southeast Asia show growing manufacturing activity.

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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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Supply Chain Resilience

Thailand is part of the Indo-Pacific Economic Framework for Prosperity (IPEF), which includes initiatives to strengthen supply chain resilience among member countries. The agreement focuses on building resilient and inclusive supply chains that can withstand disruptions from global crises, pandemics, and geopolitical tensions. Thailand also aims to serve as a manufacturing base in the supply chain for key US industries, including digital, AI, electronics, and semiconductors.

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US-China Competition

Competition with China is a key theme in US politics, with economic growth, military drills, and technology development at the forefront. China's lead in battery technology and supply chain control is a concern, while US tariffs on Chinese goods impact industries and consumer prices.

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US-Russia Relations

The US has added numerous entities to its trade blacklist for allegedly aiding Russia's war effort in Ukraine, restricting their access to US items and technologies. This action is part of the US's vigilance in defending national security and sending a message to malicious actors.

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Russia's War Economy

Russia's economy is under strain due to extensive military spending, but oil revenues and Western sanctions failures allow it to sustain the war for now. High military salaries are driving wage growth and inflation, and companies are struggling to keep up with the competition for workers.

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India's Political Stability

India's political stability is viewed as a positive factor by American buyers when sourcing apparel from the country. This stability, along with its skilled workforce and vertical integration, has contributed to India gaining market share in the US apparel market, particularly in cotton garments and high-value-added products.

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UK's Regulatory Technology Sector

The UK's regulatory technology (RegTech) sector is expected to grow significantly, driven by technological advancements and increasing regulatory pressures. Organisations are seeking innovative RegTech solutions for compliance and risk management, particularly in the financial sector. The UK RegTech market is projected to reach $19.5 billion by 2026, with a focus on integrating AI, machine learning, and blockchain technologies.

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Credit Rating Downgrade

Credit rating agency Moody's has downgraded France's outlook to 'negative', citing concerns over the country's finances and widening budget deficits. This could lead to a potential credit rating cut and impact the country's ability to borrow money in the future.

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UK's Defence Strategies

The UK is considering its defence strategies, including the purchase of F-35 fighter jets or the development of a new-generation crewed combat aircraft with Italy and Japan. Lockheed Martin, the manufacturer of the F-35s, has highlighted the economic benefits of the programme to the UK, but there have been frustrations over the high cost and delays in weapon integration.

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Challenges in Accessing Finance

German firms are facing challenges in securing loans due to economic uncertainty and hesitancy from banks, impacting business investments and job creation. This is particularly difficult for smaller companies, with larger firms like Volkswagen and BMW opting to increase investments abroad.

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Geopolitical Risks

The situation in the Middle East and the conflict between the US and China are creating economic uncertainty, affecting energy prices and stock markets globally.

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US-India Relations

The US-India relationship is crucial for both countries, with the US being India's largest trade partner. The outcome of the 2024 US presidential election will impact India's exports, investments, and economic growth, especially in defence, trade, and strategic sectors. The election of Donald Trump could bring challenges due to his stance on tariffs and immigration.

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Semiconductor Industry

Japan is a pivotal player in the global semiconductor industry, with the government allocating 2 trillion yen to boost its chip industry. Prime Minister Fumio Kishida has expressed support for the industry, and international partnerships are bolstering the prospects of Japanese semiconductor firms. The industry is projected to grow 2.3 times over the next decade, driven by advancements in AI, robotics, and automobiles.

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UK's Industrial Strategy

The UK government's new industrial strategy aims to steer the economy through the 21st-century challenges, with a focus on growth, clean energy, and investment in emerging industries like AI and robotics. However, there are concerns about regional inequality and a lack of consideration for geopolitics, Brexit, and support for traditional industries.

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Economic Impact of Geopolitical Tensions

The conflict between Israel and Iran, coupled with the Israel-Palestine tensions, has led to a volatile moment for oil markets, causing price increases. This affects not only the cost of oil but also the broader economy, including capital flows, jobs, imports, and exports. The situation has also disrupted global trade routes, with international shipping companies avoiding certain areas due to security concerns.

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Western Weapons Limitations

Ukraine's Western weapons, such as F-16s and Abrams tanks, are limited in number and may not survive the war if used extensively. Ukraine needs to maximize their potential, but doing so entails significant risks, and Western partners must accept that these weapons may not return.

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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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Hurricane Helene's Impact

Hurricane Helene caused extensive damage to Georgia, becoming the most destructive hurricane in the state's history. The storm impacted power grids, roads, water systems, and homes, resulting in a long reconstruction process and significant financial costs, with preliminary estimates of the economic impact on agriculture and timber reaching $6.46 billion.

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India's Economic Growth

The IMF maintains India's growth projection at 7% for FY25, a drop from 8.2% in 2023 due to exhausted pent-up demand. The multilateral lender expects India to grow at 7% in the current fiscal year and 6.5% in the next. The global battle against inflation is considered largely won, and a global recession has been avoided. However, downside risks dominate the outlook, including geopolitical tensions and protectionist policies.

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Digital Supply Chain Security

The UK faces increased cyberattacks from state-sponsored threat actors, particularly Russia and China. These attacks target critical national infrastructure and digital supply chains, posing significant risks to the economy and national security. Securing digital supply chains is a key focus for the UK and NATO allies.

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Property Market Crisis

China's property market is in crisis, with falling prices, stalled projects, and developers collapsing. The government has responded with financial support and policy changes, but these efforts may not be enough to stabilize the market and could have unintended consequences for the economy.

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Use of Private Security Contractors

Israel is considering using private security contractors, possibly including UK special forces veterans, to deliver aid to Gaza. This decision is controversial as aid agencies fear being targeted as combatants if they are part of militarized convoys. The use of private security firms has been proposed by Israeli-American businessman Mordechai Kahana's firm, Global Delivery Company (GDC), which has experience in war zones.

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Impact on Luxury Brands

Chinese consumers have long been a key driver of luxury brands, but a sluggish economy and changing consumer tastes have led to a decline in luxury spending. While the Chinese government's stimulus measures have revived some interest, analysts are unsure if they will spur luxury spending among target consumers. Companies like Hermes, L'Oreal, and Coca-Cola are adjusting their China strategies due to reduced consumer spending.