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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

Attackers set fire to the headquarters of a Bangladesh party that backed ousted leader Sheikh Hasina - The Independent

China imposes sanctions on US drone supplier to Ukraine - Ukrainska Pravda

China's warplanes have all but erased the dividing line in the Taiwan Strait, creating a dangerous new normal - Business Insider

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

US airstrikes target multiple sites in Syria, killing up to 35 Islamic State militants - Toronto Star

Themes around the World:

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Geopolitical Tensions and Market Volatility

Iran's ongoing conflict with Israel and the US, including military strikes and nuclear site attacks, creates significant geopolitical shocks impacting global markets. While initial market reactions are negative, historical data shows rapid recovery, presenting both risks and opportunities for investors. Persistent instability, however, threatens supply chains and investor confidence in the region.

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Stock Market Performance and Investor Sentiment

The Toronto Stock Exchange has shown strength with gains in resource and financial sectors, supported by strong corporate earnings. However, global uncertainties, including US Federal Reserve independence concerns, create volatility. Market trends influence capital availability and investor confidence in Canada.

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Corporate Profitability Under Pressure

Nearly one-third of Russia's largest companies posted losses in H1 2025, the highest since the pandemic, driven by sanctions, inflation from military spending, tax hikes, and high interest rates. This widespread corporate stress signals deteriorating business conditions and reduced investment appetite within Russia's economy.

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Strategic Mineral Resources and Geopolitical Risks

Vietnam’s Nui Phao tungsten mine is critical globally, supplying 3,400 tons annually and ranking second worldwide. Western concerns over potential Chinese influence on this strategic resource highlight geopolitical risks. Control over such minerals essential for defense and semiconductors affects supply security, with regulatory uncertainties and rising global prices influencing investment and trade dynamics.

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U.S.-Mexico Political and Security Tensions

Rising diplomatic friction marked by Mexico's rejection of U.S. military strikes on cartels and disputes over DEA initiatives highlight strained bilateral relations. President Sheinbaum's firm stance on sovereignty and opposition to U.S. unilateral actions could impact cooperation on security and trade, potentially affecting cross-border supply chains and investor confidence.

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Sterling Strength and Corporate FX Hedging

The British pound's sharp appreciation against the US dollar in 2025 has pressured UK exporters, prompting companies to increase currency hedging to mitigate earnings volatility. Firms like British American Tobacco and Unilever report significant foreign exchange headwinds. Central bank policies remain a key driver of FX risk management amid ongoing geopolitical and trade uncertainties.

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Mixed Sectoral Performance in Stock Market

Despite economic challenges, the Johannesburg Stock Exchange has shown resilience with modest gains and balanced sectoral performance. Manufacturing output has seen slight growth, supported by easing input cost pressures and currency stability, though overall momentum remains subdued amid external and domestic uncertainties.

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Impact on European Union Stability

France's political and economic crisis threatens to weaken its leadership role within the EU and destabilize the Franco-German axis, a cornerstone of European integration. Prolonged instability could disrupt EU economic coordination, trade policies, and collective responses to challenges such as climate change and technological transition, with potential contagion effects across the Eurozone.

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Emerging Market Alliances and Geopolitical Shifts

Alternative global alliances like the Shanghai Cooperation Organization (SCO) are gaining traction, reshaping trade and investment flows in Asia. These alliances may counterbalance US influence, providing India with new economic partnerships and strategic options. This evolving geopolitical landscape affects India's trade policies, investment strategies, and regional economic integration efforts.

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Commodity Price Trends and Mining Sector

Commodity prices, particularly iron ore and copper, have shown mixed performance with some price increases supporting mining stocks, while others face declines. The RBA Commodity Index improved but remains negative year-over-year. Mining giants like BHP and Rio Tinto face legal and market challenges, impacting export revenues and investment in resource extraction, which are critical to Australia's trade balance and economic health.

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EU Support and Security Initiatives for Ukraine

The EU emphasizes strengthening support for Ukraine, including defense investments and initiatives like 'The Eastern Shield.' While political rhetoric remains cautious, sustained EU backing is critical for Ukraine's security and economic recovery, influencing investor confidence and regional stability in the face of Russian aggression.

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Demographic Challenges and Domestic Consumption

Despite rising wages and bonuses, Japan faces demographic headwinds with an aging population impacting labor markets and consumption. Inflationary pressures from import costs strain household budgets, limiting real wage growth and consumer spending. These factors challenge domestic demand and necessitate policy responses to sustain economic vitality.

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Fiscal Pressures and Economic Stability Risks

The UK faces mounting fiscal challenges with soaring debt levels and borrowing costs reminiscent of the 1976 crisis. Projected deficits and high interest payments threaten public finances, prompting calls for austerity measures amid political and economic uncertainty, potentially impacting investor confidence and economic recovery.

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M&A Activity and Investment Outlook Amid Turmoil

Despite political and economic challenges, investment banks like Goldman Sachs anticipate a pickup in mergers and acquisitions in France during the latter half of the year. France's strategic sectors such as luxury goods and energy remain attractive to investors due to their global reach and resilience. However, ongoing uncertainty may delay some investment decisions, requiring careful risk assessment by international investors.

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Foreign Direct Investment Surge and Factory Leasing

Vietnam attracted $24.09 billion in registered FDI in early 2025, up 27.3% YoY, with manufacturing dominating. A notable trend is the preference for leasing ready-built factories, which accelerates project deployment and reduces upfront costs. This model supports industries requiring agility, such as electronics and medical equipment, reinforcing Vietnam's position as a competitive manufacturing hub amid global supply chain realignments.

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China's Expanding Investments

Chinese investments in Brazil surged over 100% in 2024, reaching $4.18 billion across renewables, oil, mining, and manufacturing. China is Brazil's largest trade partner and a key investor in infrastructure and energy, deepening strategic ties. This influx supports Brazil's energy transition and industrial diversification, while reinforcing geopolitical realignment away from the US sphere.

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Strategic Engagement in South Asia and Indian Ocean

Turkey's growing involvement in South Asia, particularly its close military and ideological ties with Pakistan, and expanding influence in the Indian Ocean region, raise regional security concerns. This geopolitical positioning affects regional stability and may impact trade routes and international relations involving Turkey.

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M&A and Investment Opportunities Amid Turmoil

Despite political risks, France remains an attractive destination for mergers and acquisitions, supported by its strategic sectors like luxury goods and energy. Investment activity is expected to accelerate, reflecting confidence in France's long-term economic fundamentals and its role as a European hub, even as companies navigate short-term uncertainties.

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Currency Fluctuations and Rand Strength

The South African rand has experienced a nine-month high, driven by a weaker US dollar and rising gold prices. This currency appreciation reduces import costs, helps control inflation, and boosts investor confidence. However, volatility remains due to global economic uncertainties and domestic inflation pressures, impacting trade competitiveness and investment flows.

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Manufacturing Sector Vulnerability

Manufacturing sentiment deteriorated with PMI readings falling below 50, signaling contraction. Export demand is sluggish due to tariffs and increased competition from cheaper imports. Supply chain inefficiencies, particularly in logistics and state-owned enterprises, further hamper production, threatening the sector’s role as a growth engine and employment provider.

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Federal Reserve Policy and Market Volatility

Investor concerns over Federal Reserve independence and potential interest rate cuts amid geopolitical and economic uncertainties contribute to market volatility. Changes in monetary policy influence bond yields, equity valuations, and the U.S. dollar, affecting capital flows and investment strategies globally.

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Economic Growth and Consumer Spending

Australia's economy showed its strongest growth in two years with 0.6% GDP growth in Q2 2025, driven primarily by increased household consumption aided by earlier interest rate cuts. Government spending also contributed, though infrastructure investment declined. Rising consumer confidence and discretionary spending suggest a positive outlook, but reliance on population growth tempers per capita gains, influencing monetary policy and investment decisions.

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Legal Risks for Businesses in Occupied Territories

Finnwatch warns companies operating in Israel and occupied territories face legal and ethical risks linked to alleged violations of international law and human rights abuses. Businesses may be implicated in complicity if due diligence is inadequate. This scrutiny could lead to reputational damage, legal challenges, and calls for divestment, impacting supply chains and investment decisions in the region.

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Resilience of Ukrainian Private Debt

Despite the severe impact of Russia's 2022 invasion, Ukraine's private debt market, especially in metals, mining, and agribusiness sectors, has shown remarkable resilience. Companies adapted by relocating operations and finding new export routes, maintaining production and debt servicing. This resilience signals potential investment opportunities but also underscores ongoing operational risks amid conflict.

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Monetary Policy and Interest Rate Outlook

Taiwan’s interest rate swaps indicate diminishing expectations for monetary easing despite global headwinds. Strong economic growth and increased military spending plans are pushing rates higher. The central bank is expected to deliver minimal rate cuts, reflecting confidence in Taiwan’s economic resilience amid US tariffs and domestic fiscal expansion, including clean energy investments.

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Global Semiconductor Supply Chain Cooperation

Taiwan is actively seeking international collaborations to strengthen semiconductor supply chains amid geopolitical tensions. Investments in R&D, AI infrastructure, and overseas manufacturing facilities in the US, Europe, and Japan aim to enhance supply chain robustness, reduce regional risks, and maintain Taiwan's leadership in advanced chip production.

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Mexico-U.S. Bilateral Security Cooperation

Mexico and the U.S. have established a new high-level bilateral security cooperation group focusing on cartel dismantling, border security, and illicit trafficking. Despite ongoing political tensions, this collaboration aims to enhance intelligence sharing and law enforcement coordination, impacting regional stability and investor confidence in Mexico's security environment.

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Social Unrest and Labor Market Implications

Anticipated protests and strikes following the confidence vote reflect widespread public dissatisfaction with austerity measures. Social unrest could disrupt supply chains, reduce productivity, and increase operational risks for businesses. Labor market tensions may also hinder reforms and delay economic adjustments necessary for fiscal sustainability.

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Decline in Russian Oil Sector Profits

Russian oil giants like Rosneft and Lukoil reported profit declines exceeding 50% in early 2025 due to global crude oversupply, OPEC+ production adjustments, sanctions, and a strong ruble. Despite output increases, low prices and sanctions erode financial results, limiting Moscow's ability to shield its energy sector and impacting export revenues and state finances.

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Monetary Policy Uncertainty and Rate Cut Prospects

Weaker-than-expected GDP data and labor market volatility have increased speculation about potential Bank of Canada interest rate cuts. The central bank's cautious stance amid trade disputes and inflation pressures affects borrowing costs, investment decisions, and economic growth prospects, influencing both domestic and foreign investor strategies.

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Central Bank's Inflation Outlook and Policy Guidance

The Central Bank Governor emphasizes easing underlying price pressures and supports gradual disinflation despite headline inflation surprises. The bank aims to preserve macro-financial stability, including reserves and current account balance, and signals a cautious approach to monetary easing, balancing growth support with inflation control.

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Currency and Foreign Reserves Dynamics

The South African rand has experienced volatility but showed strength following better-than-expected foreign reserves data and a weaker US dollar. Currency appreciation has helped ease import cost pressures, benefiting manufacturers reliant on imported inputs, though the rand remains sensitive to global economic indicators and domestic political developments.

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Climate Change and Flood Impact

Severe climate-induced floods have devastated key agricultural regions, destroying up to 60% of rice crops and 35% of cotton production in Punjab. This has disrupted food supplies, increased inflation, and strained fiscal resources. The ongoing climate crisis threatens rural livelihoods, economic growth, and necessitates urgent investment in resilience, infrastructure, and international climate finance.

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Monetary Policy and Inflation Dynamics

Australia's inflation accelerated unexpectedly in July, nearing the Reserve Bank's upper target, prompting a cautious approach to interest rate cuts. The RBA signals gradual easing dependent on labor market data, influencing borrowing costs, consumer spending, and investment strategies. Inflationary pressures, particularly in housing and energy, affect business costs and supply chain pricing.

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GST Reforms and Sectoral Benefits

India’s GST rationalization to a dual-slab structure (5% and 18%) reduces tax burdens on consumer durables, autos, FMCG, and renewable energy equipment. This reform is expected to stimulate consumption, enhance competitiveness, and support growth in capital-intensive and consumer sectors, providing a buffer against external tariff shocks and boosting investor confidence.

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Market Volatility Amid Political and Economic Uncertainty

September historically brings market volatility, exacerbated by political tensions, tariff uncertainties, and Federal Reserve policy doubts. Rising Treasury yields and concerns over tech sector valuations contribute to stock market declines, impacting investor confidence and global market stability.