Mission Grey Daily Brief - November 01, 2024
Summary of the Global Situation for Businesses and Investors
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Attackers set fire to the headquarters of a Bangladesh party that supported the country's ousted leader Sheikh Hasina on Thursday night. US airstrikes targeted multiple sites in Syria, killing up to 35 Islamic State militants. The UN General Assembly has condemned the US economic embargo of Cuba for a 32nd year.
US Presidential Election
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The vote, held on 5 November, could also have major consequences on international issues ranging from the climate crisis to the reorientation of global supply chains. The Republican candidate is former President Donald Trump and the Democratic candidate is current Vice President Kamala Harris. In China, where election news is filtered through heavily censored state and social media, the focus has been more on spectacle than substance – with a sense that no matter who wins, the tensions of the US-China relationship will remain. People in China have seen their economic prospects dim as the country has struggled to fully rebound following its stringent pandemic controls amid a wider slowdown and property market crisis, among other challenges. Interest in the candidates and their policies appears muted compared with past US elections.
Russia-Ukraine War
The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. New NATO Secretary General Mark Rutte confirmed this week that North Korean military units have been deployed to Russia’s Kursk region for potential battle with Ukrainian troops, who have seized territory there. Pentagon officials estimate that as many as ten thousand North Korean soldiers have been sent to Russia for military training, among them the country’s elite special forces. Even as Russia escalates militarily against Ukraine, it has deployed disinformation, influence operations, and money in Moldova and Georgia, working to turn back pro-Western majorities in both countries that favour eventual integration into the European Union (EU) and other Western institutions.
China-Taiwan Tensions
China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. Crossings of the median line have become increasingly common since August 2022, when then-House Speaker Nancy Pelosi controversially visited Taiwan, and China has been steadily erasing it altogether. In a recent drill surrounding Taiwan, 111 Chinese warplanes crossed it, marking a single-day high. A nation's ADIZ extends far beyond its territorial airspace, but the area is closely monitored for national security purposes. When Chinese aircraft enter Taiwan's de facto ADIZ, it dispatches combat air patrol (CAP) aircraft in response. In 2021, the Chinese military flew 972 aircraft into Taiwan's ADIZ, and that number nearly doubled in 2022. 1,703 aircraft were recorded in 2023. And 2024 looks to have a record-breaking number, with over 2,000 aircraft documented as of September. They're also no longer limited to a corner of the ADIZ.
China Sanctions US Drone Supplier to Ukraine
China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Skydio is currently looking for alternative suppliers because of the sanctions, which have also blocked the supply of batteries from the company's sole supplier. The company has asked the Biden administration for help. US officials are concerned that China could undermine US supply chains and make it harder to supply drones used for intelligence gathering in Ukraine. Skydio's crisis highlights the risks faced by US companies dependent on China and comes as foreign businesses worry about China's use of security laws to detain local workers and conduct corporate raids. On 11 October, China imposed sanctions on several US companies, including Skydio which is a private company, in response to Washington's approval of the sale of combat drones to Taiwan. Skydio was recently awarded a contract with Taiwan’s National Fire Agency. The sanctions were imposed before Skydio could find alternative suppliers. One of the sources said that the Chinese authorities had visited Skydio's suppliers, including Dongguan Poweramp, a subsidiary of Japan's TDK that makes batteries for drones, and ordered them to stop working with Skydio. On 30 October, Skydio notified its customers that it was limiting the number of batteries it ships with its drones due to Chinese sanctions and warned that new suppliers are not expected to come on stream until spring. Skydio is discussing the situation with companies in Asia, particularly in Taiwan. One source said that US officials had reached out to Asian allies to discuss ways to support the company. Skydio has also been in contact with Taiwan's Vice President Hsiao Bi-khim on the issue. The San Mateo-based company serves corporate and government clients, including the US military. It said it has sent more than 1,000 drones to Ukraine to gather intelligence and help record Russia's war crimes. Skydio said its newest model, the X10, was the first US drone to pass Ukraine's electronic warfare tests, which makes it harder to jam, and Kyiv has ordered thousands of such drones. China's actions come as the US Congress is considering a bill to ban Americans from using drones made by DJI, the Chinese company that dominates the global commercial drone market.
Further Reading:
Americans are going to the polls. Here’s how the US election works - World Economic Forum
China imposes sanctions on US drone supplier to Ukraine - Ukrainska Pravda
China’s watching the US election – but doesn’t see much hope for better ties - CNN
Luxembourg grain company still profiting despite Ukraine war - Luxembourg Times
Putin is making the most of a distracted and divided United States - Atlantic Council
UN General Assembly condemns the US economic embargo of Cuba for a 32nd year - Toronto Star
Themes around the World:
Euro Currency Pressure
The euro weakened against major currencies following France’s political crisis, reflecting diminished investor confidence in the Eurozone’s second-largest economy. Currency depreciation driven by instability rather than policy strategy offers no competitive advantage and may exacerbate inflationary pressures.
Corporate Governance and State-Owned Enterprise Reforms
Garuda Indonesia's management overhaul, including appointing a new Finance and Risk Director, reflects broader efforts to improve governance and operational efficiency in state-owned enterprises. These reforms, supported by sovereign wealth funds, aim to enhance financial performance and reduce losses, impacting investor perceptions and sector stability.
Geopolitical Tensions and Global Trade Risks
Rising US-China trade tensions and rare earth export restrictions create a risk-off environment impacting UK markets. The UK’s strategic positioning between the EU and global powers requires careful navigation of geopolitical risks. These tensions may disrupt supply chains, increase costs, and introduce volatility in trade and investment flows affecting UK businesses.
Sustained Trade Surplus and Export Composition
Indonesia maintains a robust trade surplus for over five years, driven primarily by non-oil and gas commodities such as palm oil, mineral fuels, and metals. However, the oil and gas sector continues to record deficits, underscoring the need for diversification and value addition. Key export partners include the US, India, and the Philippines, while deficits persist with China and Singapore.
Taiwan's Economic Resilience Amid Global Risks
Despite global trade disruptions and tariff pressures, Taiwan's economy remains resilient, supported by robust AI demand and strong capacity utilization in tech sectors. However, disparities exist as traditional industries face challenges from tariffs and competition, signaling uneven growth across sectors.
Impact of US Policy Uncertainty on Euro Area Lending
Heightened uncertainty about US economic policies, particularly trade and regulatory shifts, is dampening corporate lending in the euro area by reducing both loan demand and supply. This spillover effect weakens investment and monetary policy effectiveness in Europe, highlighting the interconnectedness of US policy decisions and global financial stability.
Monetary and Fiscal Policy Responses
The Reserve Bank of India and US Federal Reserve have actively managed monetary policy to stabilize inflation, currency volatility, and credit availability amid trade disruptions. RBI's liquidity infusion, policy rate cuts, and CRR reductions support vulnerable sectors, while fiscal measures including GST reforms aim to bolster domestic demand and mitigate tariff impacts on industries.
Geopolitical Tensions and Security Risks
Taiwan faces escalating military threats from China, including frequent airspace incursions and naval exercises. These actions heighten regional instability and pose significant risks to Taiwan's national security and global supply chains, especially in semiconductors. The potential for conflict could disrupt global markets and deter foreign investment, impacting international trade and business operations.
Currency Volatility and Market Sentiment
The British pound has experienced volatility influenced by global trade tensions, US dollar strength, and domestic fiscal concerns. Currency fluctuations impact UK export competitiveness and multinational earnings, contributing to stock market sensitivity and influencing international investment decisions.
Strategic Resource Dependencies and Supply Risks
Germany faces critical supply risks due to dependencies on rare earth elements and strategic materials like germanium, with China exerting export controls. These vulnerabilities threaten high-tech industries and highlight the need for diversified sourcing and geopolitical risk management.
Economic Stimulus and Monetary Easing Effects
The Thai government's stimulus packages, including co-payment schemes and tourism incentives, alongside interest rate cuts, have boosted domestic consumption and stock market sentiment. However, gains remain limited amid structural challenges, high household debt, and political uncertainties, constraining the stimulus' long-term effectiveness on economic recovery.
Corporate Cash Hoarding Amid Economic Uncertainty
South African non-financial companies hold a record $96 billion in cash deposits, reflecting defensive financial strategies amid weak business confidence and policy uncertainty. This liquidity preference widens the gap between savings and capital investment, potentially slowing economic dynamism and job creation despite modest GDP growth recovery.
Geopolitical Risks from North Korea Tensions
North Korea's advancing missile capabilities, including potential ICBMs, heighten security risks for South Korea and its allies. Despite ongoing hostility, South Korea continues robust economic growth and democratic development. The geopolitical tension poses risks of military conflict, which could disrupt regional stability and impact international trade and investment.
US-South Korea Foreign Exchange Policy Accord
South Korea and the US agreed on a new foreign-exchange policy framework enhancing transparency through monthly intervention data sharing. This agreement aims to reduce currency manipulation risks and lays groundwork for a potential bilateral currency swap line to stabilize markets during financial stress. It reflects deepening financial cooperation amid global currency volatility and trade tensions.
Energy Trade and Global Supply Chains
Russia remains a key crude oil supplier, notably to India, which sources over one-third of its oil from Russia despite US pressure. Discounts on Russian crude sustain demand, impacting global energy markets and supply chains. Potential shifts in export routes and sanctions could alter trade patterns and energy security dynamics.
Supply Chain Realignment and Nearshoring Trends
Global tariff wars and geopolitical uncertainties are accelerating supply chain realignments, with companies adopting nearshoring and friend-shoring strategies. India stands to benefit as firms diversify away from traditional hubs like China, leveraging proximity and political alignment. This shift presents opportunities for India to enhance its role in global manufacturing and trade networks, though challenges from trade frictions persist.
Foreign Exchange Market Expansion
Australia's foreign exchange market is expected to nearly double by 2033, fueled by Asia-Pacific trade ties, technological advancements, and increased demand for hedging and speculative trading. This growth enhances Australia's role as a financial gateway between Western and Asian markets, impacting currency volatility and international investment flows.
Impact of China's Rare Earth Export Controls
China's tightened export restrictions on rare earth elements and related technologies threaten Taiwan's semiconductor supply chains, as Taiwan sources critical materials indirectly through Japan and other countries. These controls could increase costs and disrupt production, compelling Taiwan to reassess sourcing strategies and supply chain resilience amid geopolitical competition.
Geopolitical Risk and Economic Security
Geopolitical tensions, such as the Taiwan crisis and Ukraine war, significantly impact Japanese businesses, causing supply chain disruptions and financial losses estimated at over ¥16 trillion. Companies must integrate geopolitical risk management into corporate strategy, diversify supply chains, and reduce dependency on single sources like Taiwan's semiconductor industry to mitigate potential multi-year economic damage.
Foreign Direct Investment Surge
FDI inflows reached a five-year high of $21.5 billion in H1 2025, predominantly in manufacturing, electronics, renewable energy, and digital industries. Government incentives and infrastructure improvements have enhanced Vietnam's attractiveness as a strategic investment destination, with Chinese enterprises increasingly localizing production and integrating value chains.
Surging Borrowing Costs and Bond Market Volatility
The political turmoil has led to a spike in French government bond yields, with 10-year yields surpassing 3.6% and spreads over German bunds reaching highs not seen since the Eurozone debt crisis. Elevated risk premiums increase France's debt servicing costs, strain financial institutions holding sovereign debt, and heighten market volatility.
Economic Growth and Recovery
Egypt's GDP grew 4.4% in FY 2024/25, with a 5% expansion in Q4, driven by tourism, manufacturing, and ICT sectors. This marks the fastest quarterly growth in three years, signaling economic resilience amid reforms and external shocks, and providing a positive outlook for sustained private-sector-led growth and investment opportunities.
Fiscal Challenges and Foreign Aid Reliance
Ukraine faces significant fiscal deficits exceeding 18% of GDP, with public debt rising above 95% of GDP. The economy remains heavily dependent on international financial support, including IMF programs and EU aid. This dependency creates uncertainty for sovereign debt sustainability and influences investor confidence, while military spending consumes a large budget share, affecting economic stability and reconstruction funding.
Government Stimulus and Policy Measures
The Thai government has introduced stimulus programs such as the 'Half-Half Plus' co-payment scheme and debt relief initiatives to boost domestic consumption and support SMEs. Infrastructure investments and regulatory reforms aim to enhance long-term growth, but fiscal constraints and political risks limit the scale and effectiveness of these measures.
Currency and Investment Flows
The Canadian dollar's fluctuations against the US dollar impact earnings translation and commodity markets. Increased foreign interest in Canadian bonds and equities, partly due to US Treasury sell-offs, is driving capital inflows, supporting market performance and diversification opportunities for investors.
Market Reaction to Leadership Change
Sanae Takaichi's rise as LDP leader and prospective first female prime minister triggered a sharp market rally, with the Nikkei surging and the yen weakening. Investors anticipate expansionary fiscal policies and continued monetary easing, boosting sectors like semiconductors and defense. However, this optimism is tempered by political risks and potential volatility in bond and currency markets.
South Korean Stock Market Rally and AI Chip Deals
South Korea's stock market, led by semiconductor giants Samsung Electronics and SK Hynix, has reached record highs driven by AI-related deals with OpenAI and robust export data. This surge reflects strong foreign investment inflows and positions South Korea as a key player in the global AI and semiconductor supply chain, attracting international investor interest.
Geopolitical Risk Escalation
Geopolitical volatility is rapidly rising, becoming a top global business risk by 2028, driven by trade tensions, sanctions, and political instability. This elevates uncertainty for international trade and investment, compelling firms to integrate geopolitical risk analysis into strategic planning to mitigate disruptions and capitalize on emerging opportunities.
Tourism Sector Challenges
Thailand's tourism recovery is hampered by the strong baht, making the country less price-competitive compared to regional rivals with weaker currencies. Reduced foreign tourist arrivals, especially from China, combined with intensified regional competition and high US tariffs, are limiting tourism revenues, which are critical for economic growth and employment in service sectors.
Energy Sector Financial Strains
Eletronuclear faces imminent insolvency risks due to budget cuts and mounting debt linked to the Angra 3 nuclear plant. The government seeks capital injections to maintain operations and service debts. Financial instability in key energy firms threatens energy security, project continuity, and investor confidence in Brazil's strategic energy infrastructure.
Business Morale and Economic Uncertainty
The Ukraine war and related geopolitical tensions have severely dented German business confidence. Rising energy prices, supply chain disruptions, and driver shortages have pushed the Ifo business climate index to historic lows, signaling recession risks. Companies anticipate price hikes and reduced consumer spending, exacerbating economic fragility and dampening investment appetite across sectors.
Declining Wealth of Russian Billionaires
Russian billionaires have lost significant global wealth and influence, with only six remaining in the global Top 100. Their fortunes are largely confined to domestic or neighboring markets, lacking international diversification. This decline reflects broader economic challenges and limits Russia's capacity to attract global capital and sustain high-net-worth investment-driven growth.
Strategic Partnerships with Russia and China
Iran increasingly relies on Russia and China to circumvent sanctions, including military cooperation and economic support. However, geopolitical complexities, such as Russia's reluctance to supply advanced fighter jets due to its ties with Israel, limit the depth of these partnerships. China's continued oil imports reflect pragmatic engagement despite sanctions.
Stock Market Volatility and Equity Underperformance
French equities, particularly the CAC 40, have experienced sharp declines amid political turmoil, with banking and luxury sectors hit hardest. Year-to-date gains lag behind other European markets, reflecting investor wariness. Market volatility threatens capital inflows and undermines confidence in France’s corporate sector.
Resilience of Indian Corporate Credit and Banking Sector
Despite global headwinds and tariff disruptions, Indian corporates and banks exhibit strong credit profiles and financial resilience. Low exposure to tariff-hit sectors, deleveraging, and secured lending underpin stability. Credit costs may rise moderately, but banks are well-positioned to absorb shocks, supporting continued credit growth and investment confidence amid geopolitical uncertainties.
Stock Market Performance and Sectoral Shifts
Australian equities show volatility with mining and critical minerals sectors buoyed by commodity price movements, while technology and discretionary sectors face pressure amid AI bubble concerns and global uncertainties. These dynamics influence portfolio strategies and highlight sector-specific risks and opportunities.