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Mission Grey Daily Brief - February 04, 2025

Summary of the Global Situation for Businesses and Investors

The global trade war is escalating as President Donald Trump imposes tariffs on Canada, Mexico, China, and Europe. Global markets are bracing for chaos as retaliatory actions are announced by affected countries. Economists warn of spiralling prices and disrupted supply chains, while world leaders express concerns about the potential impact on global trade and economic growth. Businesses and investors should monitor the situation closely and adjust their strategies accordingly.

Global Trade War Escalates

The global trade war is escalating as President Donald Trump imposes tariffs on Canada, Mexico, China, and Europe. Global markets are bracing for chaos as retaliatory actions are announced by affected countries. Economists warn of spiralling prices and disrupted supply chains, while world leaders express concerns about the potential impact on global trade and economic growth. Businesses and investors should monitor the situation closely and adjust their strategies accordingly.

Tariffs and Retaliation

President Donald Trump has imposed tariffs on Canada, Mexico, and China, citing concerns about <co


Further Reading:

A Rekindled Conflict Has Pushed Colombia Into a State of Emergency - New Lines Magazine

Britain cannot depend on Norway for electricity – we need our own power - The Telegraph

China calls Trump tariffs a 'serious violation' and vows to respond in kind - The Independent

China hits back as Trump’s tariffs go into effect - CNN

China shrugs off new Trump tariffs but bruising trade war looms - Hong Kong Free Press

Daybreak Africa: Uganda begins Ebola vaccine trial after new outbreak kills a nurse - VOA Africa

Donald Trump’s tariff wallop demonstrates the brute power of an imperial presidency - The Conversation

Global markets brace for chaos ahead of Trump's tariffs on Canada and China - NBC News

Trump announces significant new tariffs on Mexico, Canada and China, sparking retaliatory actions - CNN

Trump hits Canada, Mexico and China with steep new tariffs, says Americans could "some pain" - CBS News

Trump hits Canada, Mexico and China with steep new tariffs, says Americans could feel "some pain" - CBS News

U.S. stocks, global markets fall on fears of a new trade war - NPR

US tariffs on imports set to rise drastically on Tuesday - Vatican News - English

Uh oh, Canada: Trump declares trade war on America's "best friend" - Axios

World reacts to Trump's order for tariffs on Canada, Mexico and China, as he warns Europe will be next - CBS News

Themes around the World:

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China's Military Pressure and Surveillance on Taiwan

China's release of satellite imagery targeting Taiwan's military and critical infrastructure signals escalating military intimidation. This dual-use surveillance technology underscores Beijing's intent to monitor and potentially disrupt Taiwan's defense and semiconductor hubs, heightening geopolitical risks that threaten global technology supply chains.

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Consumer Spending Strength

Vietnam's consumer market is robust, with retail sales and service revenues up over 12% in 2025. Stable inflation, tight labor markets, and rising real wages support expanding household purchasing power. Tourism recovery further fuels spending. However, currency depreciation risks imported inflation, potentially pressuring prices and credit policies, though domestic demand remains a key growth pillar amid global headwinds.

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Monetary Policy Challenges and Central Bank Independence

Political pressures on the US Federal Reserve threaten its independence, complicating monetary policy predictability. This undermines investor confidence in inflation control and interest rate stability. Globally, central banks face expanded mandates beyond price stability, increasing policy uncertainty. These dynamics affect capital markets, borrowing costs, and investment decisions, necessitating vigilant scenario planning.

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Currency Exchange Rate Fluctuations

The Pakistani rupee exhibits volatility against major currencies, influencing import costs, export competitiveness, and inflationary pressures. Exchange rate instability complicates financial planning for businesses and investors, affecting trade balances and foreign investment decisions. Central bank interventions and fiscal policies will be crucial to stabilize the currency and support economic confidence.

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Critical Minerals Vulnerabilities and Strategic Partnerships

India faces acute vulnerabilities in critical minerals due to import dependence, limited reserves, and underdeveloped processing capacity, especially vis-à-vis China’s dominance. Strategic partnerships with Global South countries and multilateral initiatives aim to secure upstream access and develop value chains, crucial for India's clean energy transition and geopolitical security.

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Inflation Crisis and Public Distrust

Iran's failure to control inflation, with food prices doubling and rural inflation exceeding 53%, fuels widespread economic anxiety and deepens social divides. Poor policy coordination and rising poverty levels threaten domestic consumption and labor market stability, complicating business operations and investment outlooks.

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Anti-Money Laundering and Crypto Regulation

Turkey is intensifying efforts to combat money laundering, particularly in the cryptocurrency sector, following the seizure of a major crypto company linked to illicit activities. The Financial Action Task Force (FATF) has removed Turkey from its gray list, but ongoing evaluations and regulatory tightening aim to enhance financial transparency and reduce risks associated with crypto-assets and payment service providers.

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Military Conflict and Regional Instability

Ongoing intense fighting in eastern Ukraine, particularly around Pokrovsk and Zaporizhzhia, continues to destabilize the region. Russian advances and Ukrainian defensive efforts create a volatile security environment, complicating logistics, supply chains, and business operations, while increasing risks for foreign investors and multinational corporations operating in or near conflict zones.

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Foreign Direct Investment and Structural Reforms

FDI inflows have declined amid the exit of multinational firms and policy unpredictability. Recent investments are capital-intensive but lack innovation and technology transfer. Experts emphasize the need for governance reforms, stable taxation, and improved regulatory frameworks to attract sustainable, innovation-driven FDI critical for long-term growth and job creation in sectors like IT and pharmaceuticals.

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Commodity Market Dynamics and Critical Minerals

Australia's role as a major supplier of rare earths and critical minerals is increasingly strategic amid global tech and defense competition. However, market volatility, geopolitical trade disputes, and challenges in processing capacity affect export stability and investment in this sector, impacting global supply chains and technological development.

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SME Financing and Business Environment Challenges

Small and medium enterprises face significant barriers including limited access to credit, burdensome regulations, and governance weaknesses. High compliance costs and inadequate policy implementation restrict SME growth and job creation potential, underscoring the need for targeted financial support, regulatory simplification, and enhanced governance to foster inclusive economic expansion.

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Global Market Interconnectedness and Contagion Risks

The UK market remains sensitive to global financial shocks, such as potential US stock market corrections. Interconnected markets mean volatility abroad can transmit to UK equities and financial services, necessitating defensive investment approaches and diversification to mitigate contagion risks.

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US-China Trade Tensions and Transshipment Risks

Despite a Trump-Xi trade truce, US tariffs and trade policies continue to pressure Chinese exports, with a notable 27% year-on-year drop in shipments to the US. Rising transshipments through third countries complicate enforcement, while potential US country-of-origin rules pose further risks to Chinese goods' market access, impacting global supply chains and trade flows.

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Housing Market and Lending Risks

Rising high-risk mortgage lending and elevated household debt pose systemic risks to Australia's banking sector. APRA's monitoring and potential regulatory interventions aim to prevent financial instability, highlighting the interconnectedness of housing finance, superannuation funds, and broader economic health.

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Labor Market Pressures and Social Risks

Rising labor costs, social security contributions, and minimum wage increases strain labor-intensive sectors, leading to cautious hiring and planned layoffs. Industrial job losses have a multiplier effect on related sectors, risking broader social instability and reducing consumer demand, which in turn affects domestic market dynamics and investment decisions.

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Canadian Equity Market Dynamics

Canadian stock markets exhibit strong activity in sectors like energy, materials, and financials, with notable companies such as Canadian Natural Resources, Canadian Solar, and major railways driving trading volumes. Currency risk, regulatory environment, and dividend policies remain key considerations for international investors engaging with Canadian equities.

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Rising Oil Exports Despite Sanctions

Iran's crude oil exports have reached a seven-year high of approximately 2 million barrels per day despite renewed UN sanctions. This resilience challenges sanction efficacy, sustains government revenues, and affects global oil supply, presenting complex considerations for international energy markets and trade policies.

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Regional Profit Warning Trends

Profit warnings in UK regions such as Yorkshire and the Midlands show sector-specific vulnerabilities, notably in industrials, construction, and materials. These regional disparities highlight localized economic stress points, impacting supply chains and regional investment attractiveness within the UK.

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Manufacturing Sector Challenges and Greenfield Project Decline

Manufacturing greenfield projects in India have declined sharply amid global FDI downturns and heightened US tariffs. UNCTAD reports a 26% drop in manufacturing projects, reflecting investor caution in supply-chain-intensive sectors like textiles and electronics. This contraction threatens India's ambitions to expand manufacturing capacity and integrate into global value chains, highlighting the need for policy measures to mitigate tariff impacts and attract new investments.

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Shift Toward Multipolar Global Order

The global power structure is transitioning from US dominance to a multipolar system with emerging centers in China, India, Brazil, and Saudi Arabia. This shift complicates alliances, weakens US financial leverage, and fosters alternative trade and financial systems, requiring businesses to navigate increased geopolitical complexity and evolving strategic partnerships.

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Foreign Capital Influx and Digital Transformation

Foreign ownership of companies in Germany surged over 600% in a decade, reflecting a shift towards global integration and digital transformation. Key investors include Luxembourg, UK, China, and the US, targeting sectors from manufacturing to cloud infrastructure. This trend reshapes Germany’s economic landscape, offering opportunities but also raising questions about control and strategic autonomy.

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US Reciprocal Tariffs Impacting Exports

The US's reciprocal tariff policy is projected to slow Thailand's GDP growth to 1.7% in 2026, affecting a large share of exports under Section 232. While exporters currently absorb cost pressures, eventual consumer price increases may weaken export competitiveness, compelling businesses to innovate and diversify markets to mitigate tariff-related risks.

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Surge in Foreign Direct Investment

Brazil experienced a 67% increase in foreign direct investment (FDI) in new productive projects from 2022 to 2025, reaching US$37 billion. This growth outpaces the global average and is driven by Brazil's geopolitical neutrality and diversification of investment sources, including Asia and the Middle East. Energy projects dominate, attracting nearly half of FDI, signaling robust sectoral opportunities.

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Rising Foreign Asset Holdings and Domestic Investment Decline

South Korea’s foreign financial assets have surged to $2.7 trillion, over half of GDP, driven by current account surpluses and outbound investments. While enhancing external financial strength, this trend weakens domestic capital markets, depresses the won, and exposes the economy to global risks, potentially undermining long-term growth and productivity.

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Stagnant Economic Growth Outlook

Economic forecasts predict stagnation for Germany in 2025 with only modest growth of 0.7% in 2026. Business sentiment remains cautious, with low expectations for improvement. Investment and employment prospects are weak, constrained by high labor costs, regulatory burdens, and subdued domestic demand, limiting Germany's attractiveness for both domestic and foreign investors.

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AI Sector Volatility and Market Concentration

The US technology sector, particularly AI-related companies like Nvidia and Tesla, faces heightened volatility amid investor skepticism about sustainability and valuations. The concentration risk in tech stocks affects market dynamics and investment portfolios, requiring cautious exposure and scenario planning.

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Declining Foreign Debt and Fiscal Stability

Indonesia's external debt decreased to US$424.4 billion in Q3 2025, with private sector debt contracting while government debt growth slowed. The debt-to-GDP ratio improved to 29.5%, reflecting prudent fiscal management amid global financial market uncertainties. This trend supports sovereign creditworthiness but requires continued vigilance to maintain debt sustainability.

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Thailand's Balancing Act Between US and China

Thailand skillfully balances relations between China and the US, leveraging multiple trade frameworks with China and strategic agreements with the US. This pragmatic approach mitigates geopolitical risks, preserves trade benefits, and maintains regional stability, critical for sustaining foreign investment and supply chain integration in a complex global environment.

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Media Freedom and Political Risks

Turkey's media environment remains constrained with significant government influence, regulatory pressures, and risks to journalistic freedom. This environment poses reputational and operational risks for businesses, potentially affecting transparency and information flow critical for market confidence and foreign investment decisions.

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Taiwan's Currency and Economic Risks

Taiwan's long-term undervaluation of the New Taiwan dollar, termed 'Taiwanese disease,' supports export growth but suppresses domestic wages and consumption. This currency policy inflates housing prices and accumulates massive foreign reserves, creating systemic financial risks, especially for insurance firms exposed to currency fluctuations. A shift toward a more flexible exchange rate is critical to mitigate these vulnerabilities.

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Surge in Gold Prices and Demand

Global geopolitical risks have driven a surge in gold prices, with Indonesia's gold sales rising 20% year-on-year to over 34,000 kilograms in 2025. Gold is increasingly viewed as a safe-haven investment domestically, contributing significantly to inflation. This trend affects commodity markets, investment portfolios, and inflation management strategies in Indonesia.

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Conglomerate Investment in Infrastructure and Renewables

Vietnamese conglomerates, notably Vingroup and Hoa Phat Group, plan to invest heavily—up to $185 billion over the next decade—in infrastructure and renewable energy projects. These investments align with national development goals to upgrade connectivity and energy capacity, potentially transforming Vietnam's economic landscape. Successful execution will be critical to realizing growth and addressing infrastructure bottlenecks.

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Foreign Investment Interest in Steel Sector

Foreign investors from Europe, China, and Vietnam show strong interest in Indonesia's steel industry, seeking to establish local production facilities to comply with regulations and tap domestic and export markets. However, domestic steel utilization remains low due to competition from imports, highlighting challenges and opportunities in industrial policy and investment climate.

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Semiconductor Supply Chain Vulnerabilities

Despite Chinese rare earth export restrictions, Taiwan's semiconductor industry, led by TSMC, has diversified supply sources and buffers to mitigate immediate impacts. Nonetheless, geopolitical risks and potential Chinese military actions threaten the global semiconductor supply, underscoring the need for supply chain diversification.

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Export-Led Economic Growth

Thailand's economy is outperforming expectations in 2025, with export growth revised up to 10%, driven by resilient manufacturing and trade diversification amid US tariffs. Government stimulus supports consumption, while inflation remains subdued. This export resilience strengthens Thailand's position in global supply chains and underpins GDP growth prospects.

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Domestic Financial Resilience

Despite external risks, Irish households, businesses, and banks maintain relatively healthy balance sheets with low debt levels and high savings. The domestic banking system shows capacity to absorb severe shocks, supporting economic stability. However, pockets of vulnerability remain among low-income households with high borrowings, necessitating cautious fiscal and monetary management.