
Mission Grey Daily Brief - January 30, 2025
Summary of the Global Situation for Businesses and Investors
The world is witnessing a new era of Trump, with the second administration of President Donald Trump beginning in the United States on January 20, 2025. Trump's campaign slogan, "Make America Great Again (MAGA)," signifies a focus on revitalizing the domestic economy and maximizing American economic interests by ceasing to act as "the world's policeman" and reconstructing "American hegemony." This has led to a shift in global circumstances, with China and Russia viewed as critical issues and potential threats. Trump's unpredictable negotiation-focused approach has raised questions about international society's reaction and China's engagement with it.
Trump's Second Term and its Global Implications
The Trump administration has designated China as the greatest threat, citing Beijing's long-term and strategic pursuit of global hegemony by 2049. Xi Jinping's "100-year plan" aims for "The Great Rejuvenation of the Chinese Nation", surpassing other countries economically and militarily. China's Belt and Road Initiative is expanding in Asia, Africa, and South America, constructing an independent economic system for military superiority. China's domestic economy shows signs of slowing down, but its focus on innovation suggests continued near-term expansion.
Trump's negotiation-focused approach is highly unpredictable, making it difficult to forecast international society's reaction and China's engagement with it. Some countries may strengthen ties with the U.S. based on economic interests, while others may experience cooling relationships. Withdrawal from multilateralism and divergence from internationally agreed "rule-based governance" are anticipated, particularly on issues like Palestine and climate change.
Rising Tensions in the Middle East and Asia
The West's victory in the Israel-Iran conflict, centred on Gaza, has demonstrated the U.S. and its allies' ability to prevail while managing multiple conflicts, including the Russia-Ukraine War and the Israel-Hamas War. This capability to mobilise and deploy vast political, economic, military, and intelligence assets has prompted a major attitudinal shift among key Middle Eastern powers, such as Saudi Arabia and the U.A.E. New agreements for Western firms in Iraq indicate a potential shift in regional dynamics.
Trump's Aggressive Stance on Immigration and its Impact on Latin America
Trump's standoff with Colombia over migrant deportations has sent ripples through Latin America, with Colombia ultimately conceding to U.S. demands. This aggressive posture and willingness to weaponize immigration and tariffs threaten regional economic balance and erode trust in U.S.-Latin American relations. Left-leaning governments advocating for policies misaligned with Washington's priorities may face heightened scrutiny and pressure. Smaller economies reliant on U.S. trade and investment are at high risk, and some countries may be pushed to strengthen ties with U.S. competitors like China and Russia.
Red Sea Shipping Route Disruptions
An explosion on a Hong Kong-flagged container ship in the Red Sea has forced the crew to abandon the vessel, sparking a major fire. The Red Sea is a crucial route for energy shipments and cargo between Asia and Europe, with $1 trillion worth of trade passing through annually. Houthi attacks have halved the number of ships using the route, and shippers are avoiding it due to risks, despite Houthi pledges to limit assaults. This disruption has significant implications for global trade and supply chains.
Further Reading:
Does A Rush Of New Agreements Mean The West Is Regaining Its Influence In Iraq - OilPrice.com
Explosion forces crew to abandon Hong Kong-flagged container ship in the Red Sea - The Independent
How a trade war and U.S. tariffs could hit Canada’s housing market - Global News Toronto
The U.S.-China Struggle and Japan's Strategic Direction - 笹川平和財団
What Hegseth thinks of Russia and China as he takes the Pentagon reins - Axios
Themes around the World:
Impact of US Tariffs and Trade Policies
US-imposed tariffs have created headwinds for Taiwan's export-driven economy, prompting government measures including an $18 billion resilience fund to support affected industries. While tariff exemptions on key tech products have bolstered exports in 2025, the looming expiration of these exemptions and ongoing trade tensions introduce uncertainty for manufacturing and investment strategies.
US Tariffs and Trade Tensions
US-imposed tariffs, including a 19% levy on Thai exports, disrupt Thailand's trade dynamics, prompting front-loading of exports and supply chain adjustments. These tariffs pressure Thailand's export-dependent industries, necessitating strategic shifts towards higher value-added sectors and diversification to maintain global market access and competitiveness.
Credit Quality Stability Amid Regional Risks
Moody's projects stable credit profiles for Mexican corporates and infrastructure through 2026 despite trade tensions and regulatory uncertainties. However, investor caution persists due to evolving trade terms with the U.S. and recent tariff policies, influencing financing costs and investment risk assessments.
Impact of US Tariffs and Global Trade Tensions
US-imposed tariffs, including a 15% duty on most EU exports and potential increases on automobiles, weigh heavily on German exports. These trade barriers exacerbate manufacturing sector challenges, disrupt supply chains, and contribute to economic uncertainty, compelling German firms to reassess international market strategies.
Equity Market Performance and Sectoral Shifts
UK equity markets showed modest gains led by consumer staples and utilities, while banking and travel sectors faced pressure. Rising bond yields and fiscal concerns influenced investor sentiment. Retailers and insurers may benefit from market volatility, but ongoing economic challenges and fiscal policy uncertainty continue to shape stock performance and capital allocation.
Economic Growth Challenges and Consumer Confidence Decline
France's economic growth remains sluggish, with marginal GDP increases and declining consumer spending. Consumer confidence has dropped below forecasts, signaling weakening domestic demand. The political crisis compounds economic risks by undermining business investment and hiring, raising fears of recession. Persistent fiscal deficits and high public debt constrain the government's ability to stimulate growth or implement structural reforms effectively.
Manufacturing Sector Contraction
China's manufacturing PMI remains below 50, signaling contraction amid US tariffs and weak external demand. This trend pressures growth targets, affects employment, and forces firms to lower costs and wages, challenging Beijing's shift to a consumption-driven economy and influencing global supply chains reliant on Chinese manufacturing.
Currency Volatility and Baht Strength
The Thai baht has surged to a four-year high, driven by US dollar weakness and gold price rallies, posing challenges for export competitiveness and tourism revenue. The central bank is actively intervening to curb volatility and mitigate adverse effects on trade-reliant sectors, highlighting the delicate balance between currency stability and economic growth.
Economic Growth vs. Rising Unemployment
China faces a delicate balance between achieving growth targets and managing rising unemployment, especially youth joblessness. Intense price wars, particularly in the electric vehicle sector, and weak external demand strain profit margins and labor markets, complicating policy responses and potentially impacting domestic consumption and social stability.
Labor Market Slowdown Amid Economic Pressures
The Russian labor market is cooling, with fewer companies planning workforce expansion and a slight rise in layoffs. Economic correction and high borrowing costs affect construction and finance sectors most, while IT, manufacturing, and cybersecurity maintain stable employment and competitive salaries. This slowdown signals weakening domestic demand and potential challenges for consumer-driven growth.
Global South Investment in Russian Far East
Despite Western sanctions, Russia's Far East attracts investment interest from ASEAN, China, BRICS, and other Global South countries. Russia's political commitment and resource wealth underpin this strategy, offering alternative capital sources and economic partnerships that may partially offset Western economic isolation and support regional development.
SME Financing and Growth Opportunities
The Global SME Finance Forum highlights efforts to bridge South Africa's SME funding gap through innovative financing mechanisms, including pension fund contributions and blended finance. Targeting labor-intensive sectors and sustainable industries, these initiatives aim to stimulate job creation and diversify economic growth amid constrained traditional funding channels.
Deflationary Pressures Amid Weak Trade Data
China faces intensifying deflation risks as consumer prices fell 0.4% year-on-year in August, while producer price declines slowed. Weak external demand, exacerbated by US tariffs, fuels price competition and margin pressures, challenging policymakers to implement stimulus measures to revive domestic consumption and stabilize inflation expectations.
US-China Trade Tensions and Regional Pivot
Despite a temporary truce, US-China trade tensions persist with risks of tariff escalations. China is pivoting trade focus towards Southeast Asia and strengthening ties with BRICS nations to reduce US dependency. These shifts impact global trade flows, supply chains, and geopolitical alignments affecting international business strategies.
Shifts in Israeli Stock Market Composition
The iShares MSCI Israel ETF (EIS) has seen increased exposure to financial stocks, making returns more cyclical and dependent on GDP growth acceleration. Despite geopolitical tensions and currency risks, Israel's strong demographics and innovation-driven competitiveness support upside potential, presenting a nuanced investment opportunity amid volatility in the Israeli equity market.
Energy Sector Challenges and Oil Price Decline
Russia's oil giants face profit collapses due to low global crude prices, OPEC+ production increases, and sanctions-induced discounts. Despite stable or increased output, revenues have dropped sharply, undermining state budgets and exposing vulnerabilities in Russia's hydrocarbon-dependent economy amid global energy market volatility.
US Immigration Raid Impact on Korean Firms
A large-scale US immigration raid at a Hyundai-LG Energy Solution battery plant in Georgia has strained Seoul-Washington ties and raised investor anxiety. The detention of Korean workers threatens Korean firms' US operations, potentially delaying projects and complicating staffing, while casting a shadow over South Korea's substantial US investment commitments.
Protectionist Tariff Measures and Trade Tensions
Mexico is proposing tariffs up to 50% on imports from countries without free trade agreements, notably targeting Chinese goods such as automobiles and steel. This move aligns with U.S. pressure to limit Chinese influence but risks escalating trade tensions and retaliation, particularly from China, which may restrict critical mineral exports. These tariffs could disrupt supply chains and raise costs for Mexican consumers and industries.
Political Instability and Leadership Transition
Prime Minister Shigeru Ishiba's resignation has triggered political uncertainty in Japan, impacting investor sentiment and market volatility. The leadership race within the ruling Liberal Democratic Party (LDP) introduces risks of policy shifts, particularly regarding fiscal expansion and monetary easing. This instability affects currency valuations, bond yields, and foreign investment flows, complicating Japan's economic outlook and trade relations.
Middle East Conflict Escalation
Israel's strike in Qatar targeting Hamas leadership has escalated regional tensions, impacting global energy markets by increasing the geopolitical risk premium on oil. This action complicates US diplomatic efforts and risks broader instability in the Gulf, a critical energy hub, potentially disrupting supply chains and raising costs for international businesses dependent on Middle Eastern energy.
Commodity Price Pressures and Supply Chain Impacts
Rising raw material costs, notably in coffee due to poor harvests and US tariffs, have led to price hikes by major Brazilian roasters. These cost pressures affect domestic consumption and export competitiveness. Climate-related production challenges and geopolitical trade barriers contribute to supply chain volatility, influencing global commodity markets and Brazilian agribusiness profitability.
Economic Diversification and Infrastructure Development
Despite sanctions and conflict, Iran is pursuing infrastructure projects, including renewable energy expansion and nuclear power plant construction with Russian assistance. The construction sector faces short-term contraction due to inflation and instability but is forecasted to grow moderately. These developments signal government efforts to diversify the economy and attract foreign investment, offering potential opportunities amid risks.
Geopolitical Risks and Trade Tariffs
U.S. tariffs, including a 10-15% baseline on European exports, weigh heavily on Germany's export-driven economy, particularly automotive and chemical sectors. The ongoing Russia-Ukraine conflict and geopolitical tensions exacerbate uncertainties, disrupting supply chains and dampening foreign demand. These factors contribute to volatility in orders and investment, complicating Germany's economic outlook and trade relations.
Persistent High Inflation and Monetary Policy
Inflation remains elevated at around 33%, slowing less than expected, complicating the Central Bank's easing plans. The bank has cut rates but is cautious due to inflationary pressures from food, education, and housing. Inflation risks and geopolitical tensions may limit further rate cuts, impacting borrowing costs and investment climate.
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.
Geopolitical Influence and External Actors
Analysts suggest that external actors, including Western organizations like the National Endowment for Democracy and George Soros' Open Society Foundations, may be influencing Indonesia's protests. This raises concerns about geopolitical motives aimed at destabilizing Indonesia due to its strategic economic position, BRICS membership, and alignment with China and Russia, affecting international relations and investment risk assessments.
Declining US-China Business Confidence
US companies' optimism about operating in China has plummeted to a historic low of 41%, driven by escalating trade tensions, regulatory unpredictability, and economic slowdown. This erosion of confidence signals potential shifts in investment strategies, supply chain diversification, and a cautious approach to long-term commitments, impacting bilateral trade and global economic dynamics.
Vietnam's Military and National Identity
Vietnam's large-scale military parades and national celebrations underscore its emphasis on sovereignty, defense modernization, and national pride. This reflects strategic balancing amid regional tensions, particularly in the South China Sea, and signals to investors the government's commitment to stability and security, which are critical for sustained economic development.
Geopolitical Strategic Position
Pakistan's geography positions it as a pivotal pivot and rimland state, bridging South Asia, Central Asia, and the Gulf. Its strategic importance has increased amid regional conflicts and global power shifts, attracting attention from major powers like the US, China, and Gulf states. This enhances Pakistan's role in regional security and trade corridors, influencing foreign investment and diplomatic relations.
Government Spending and Infrastructure Investment
Recent reductions in government spending and public infrastructure investment may constrain long-term economic growth prospects. Lower fiscal stimulus could dampen demand and delay critical infrastructure projects, impacting supply chains and business operations reliant on public sector support.
Geopolitical Risks in Maritime Trade Routes
Nearly half of Germany's non-EU imports and exports depend on maritime transport through critical chokepoints like the Suez Canal, Bab el-Mandeb, Malacca, and Taiwan Strait. Rising geopolitical tensions and instability in these maritime centers pose substantial risks to German supply chains and trade flows, threatening timely delivery and increasing costs for international business operations.
US-China Trade Tensions and Tariffs
Ongoing US tariffs on Chinese goods, including copper and transshipments via third countries, continue to pressure China's export resilience. Mexico's recent tariff imposition on Chinese goods further complicates trade dynamics, threatening China's 5% GDP growth target and forcing firms to adapt supply chains and market strategies amid rising protectionism.
Psychosocial Impact of Public Executions
The rise in public executions in Iran has been condemned for causing severe psychological harm and social instability. Such human rights concerns contribute to reputational risks for businesses and may trigger further international sanctions or boycotts, affecting Iran's global trade relations.
Fed's Internal Divisions and Policy Uncertainty
The Federal Reserve faces internal disagreements and complex policy challenges amid political pressures and mixed economic signals. Debates over the long-term neutral interest rate and the pace of rate cuts contribute to market uncertainty, affecting fixed income volatility and investment strategies globally.
Activist Investors Reshape U.S. Business Landscape
New activist investors are prompting strategic reassessments across major U.S. corporations, influencing governance and operational decisions. This shake-up occurs amid broader political tensions and economic uncertainties, affecting business confidence and investment strategies.
USD/CAD Exchange Rate Volatility
The USD/CAD pair has experienced volatility influenced by softer U.S. employment data and expectations of Federal Reserve rate cuts. Canadian economic indicators and Bank of Canada policy decisions also play critical roles. This dynamic impacts trade competitiveness, hedging strategies, and cross-border investment decisions.