Mission Grey Daily Brief - May 21, 2025
Executive Summary
In the past 24 hours, the global landscape has shifted significantly on multiple fronts—particularly in trade, geopolitics, and commodity markets. The United States and China have reached a temporary truce in their escalating tariff war, offering a window of relief for global markets even as the specifics of long-term cooperation remain uncertain. In Europe, the pain of ongoing conflict in Ukraine drove the EU and UK to launch substantial new sanctions against Russia, while direct ceasefire talks continue to stall. Meanwhile, the humanitarian crisis in Gaza triggered the suspension of major trade negotiations with Israel and a formal review of EU-Israeli relations, highlighting both the economic and moral consequences of protracted conflict. In the energy and commodities sectors, fears of Middle East escalation—especially regarding Iran—have driven oil prices up by more than 1%, exposing persistent vulnerabilities in tightly concentrated supply chains. As world leaders gather at the G7 finance summit in Banff, policy and economic uncertainty remain elevated, underscored by volatile markets and growing fragmentation in the global order.
Analysis
US–China: Thaw in the Trade War or Truce Before the Next Storm?
After months of intensifying dispute, US and Chinese officials announced a 90-day rollback of most newly imposed tariffs, substantially de-escalating a trade war that had roiled stock markets and complicated global supply chains. Both sides agreed to drop tariffs by 115 percentage points and paused reciprocal retaliation measures, retaining a 10% baseline tariff as negotiations continue. This is the most significant progress in years, averting what negotiators called an “effective blockade” of each other’s goods and instantly rallying global equities and commodities. However, underlying issues of technology transfer, market access, and strategic rivalry remain unresolved. China remains wary of US “decoupling” moves and is doubling down on tech self-sufficiency and regional integration via Belt and Road projects, while the US maintains embargoes in sectors like semiconductors, pharmaceuticals, and critical minerals in the name of national security. The relief is real, but the risk of future escalation endures—especially with the White House’s persistent “America First” trade stance and Beijing’s long-term strategic determination to become less dependent on US-linked supply chains [US and China ag...][Fact Sheet: Pre...][U.S. and China ...][China counts on...].
Russia, Ukraine, and the 17th Round of Sanctions
Despite President Trump’s recent personal interventions—including a call with President Putin aimed at brokering direct talks—the war in Ukraine continues with little sign of real progress. The most recent direct talks in Istanbul failed, with Kyiv accusing Moscow of bad faith and “buying time” for further military advances. In response to Russia’s ongoing aggression and deliberate circumvention of earlier sanctions, the EU just approved its 17th sanctions package, targeting nearly 200 vessels of Russia’s covert “shadow fleet” in an effort to squeeze Russia’s oil revenues. The UK has matched these measures, sanctioning dozens of Russian financial institutions and propagandists, further isolating the Russian economy. Yet the reality is that Russia remains resilient—able to shift energy exports to China and India, and still operating hundreds of unsanctioned tankers. The Western pressure is mounting, but so is the need for coordination as Trump’s administration signals less willingness for unilateral escalation and more focus on getting Ukraine to negotiate directly with Moscow. For businesses, the risks surrounding Russian energy, compliance, and secondary sanctions remain acute [EU Approves New...][EU, UK Unveil F...][Ukraine war: Ze...].
Israel and Gaza: Economic Fallout from Humanitarian Crisis
The humanitarian disaster in Gaza has begun to reshape Israel’s diplomatic and economic relationships in unprecedented ways. The UK has paused trade negotiations and sanctioned Israeli West Bank settlers, calling Israel’s restriction of aid and use of force “morally unjustifiable” and “wholly disproportionate.” The EU, meanwhile, has announced a formal review of its association agreement with Israel, citing catastrophic conditions on the ground and questioning the legal and moral underpinnings of continued cooperation. The ramifications are profound: not only does this mark a sharp divergence between Washington and its transatlantic allies’ approach on Israel, but it also signals to global companies the growing exposure and reputational risks of involvement in the Israeli market during periods of crisis. The growing international outcry—and concrete economic costs—illustrate how the global moral climate is now inseparably linked to questions of trade, investment, and access [From kingmaker ...][UK pauses trade...][World News and ...].
Middle East Volatility Spurs Oil and Commodity Jitters
Oil prices climbed more than 1% overnight on news that Israel may be preparing a military strike against Iranian nuclear installations, underscoring the ever-present risk of supply disruptions in the world’s most critical energy-producing region. Iran remains the third-largest oil producer in OPEC, and any direct confrontation—especially with persistent talk of Tehran closing the Strait of Hormuz—could have outsized implications for global energy security. Compounding matters, critical mineral markets—including those for lithium, copper, and rare earths—are more concentrated than ever, raising the risks of severe supply shocks in an era of growing export controls and political fragmentation. The International Energy Agency (IEA) now warns that the average share of the top three refined material suppliers is set to stay at over 80% even through 2035, cementing China’s dominance. Businesses reliant on these commodities for the energy transition, advanced manufacturing, or tech infrastructure are especially exposed to geopolitical instability in both the Middle East and East Asia [Low diversity i...][Oil gains as re...][Asian shares cl...].
Conclusions
The world system is in flux, with today’s headline breakthroughs masking deeper structural instabilities. Markets have welcomed the short-term US–China tariff truce, but long-term de-risking, decoupling, and technology rivalry are not going away. The Ukraine crisis continues to exert heavy costs on both Europe and Russia, and, despite increasing Western sanctions, Moscow has not been forced into true diplomatic retreat. Meanwhile, the Gaza conflict has reached a tipping point, shifting international alliances and directly linking humanitarian conduct to economic opportunity.
For international businesses, these events reaffirm the imperative to diversify supply chains, strengthen compliance, and monitor the reputational ramifications of political risk. The growing link between conflict, ethical standards, and commercial access raises important questions: Can global corporations truly insulate their operations from shifting political winds? Are the economic penalties being applied enough to change the conduct of actors like Russia and Israel? And as power continues to fragment across multiple axes, how should free world businesses and investors calibrate their strategies in a world where values and profits can no longer be neatly separated?
How prepared is your organization for an environment where commerce and conscience are increasingly joined? Are you positioned to not just respond, but to adapt and lead in this new era of geopolitical risk?
Further Reading:
Themes around the World:
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.
Investor Sentiment and Equity Market Performance
French equities have underperformed relative to broader European benchmarks due to political risk premiums and economic uncertainty. Despite this, sectors with global exposure, such as luxury goods and energy, remain attractive. Investor caution may delay hiring and capital expenditures, influencing corporate strategies and M&A activity within France.
Political Risk Impact on International Investments
Over half of surveyed companies reported losses from political risks such as foreign government interference, currency volatility, and political violence between 2020-2025. Interest in political risk insurance (PRI) has surged 33%, yet awareness remains low. This trend underscores the need for businesses to reassess risk management strategies amid geopolitical fragmentation and policy uncertainty affecting cross-border investments.
Geopolitical Risks and Cybersecurity Threats
Escalating geopolitical tensions have heightened cyberattack risks targeting Australia's banking sector, prompting increased regulatory vigilance. The Australian Prudential Regulation Authority (APRA) is intensifying efforts to safeguard financial institutions, recognizing that geopolitical instability could disrupt operations and investor confidence, thereby affecting financial stability and cross-border investment flows.
Resilience of Ukrainian Private Debt
Despite the severe impact of the 2022 Russian invasion, Ukrainian private sector debt markets, particularly in metals, mining, and agribusiness, have shown remarkable resilience. Companies adapted by relocating operations and diversifying supply chains, maintaining debt service through alternative export routes. This resilience signals potential investment opportunities but underscores ongoing geopolitical risks affecting credit markets.
Rising Mexico Stock Market Optimism
Mexico's stock market is experiencing a significant rally, reaching record highs with a 24.2% gain in 2025. Renewed investor appetite is driving IPO activity, signaling increased confidence in domestic equities. This momentum is supported by expectations of U.S. Federal Reserve interest rate cuts and improved economic fundamentals, potentially attracting more foreign and local investment.
Corporate Buybacks and Strong Earnings
Japanese companies have accelerated share buybacks, absorbing nearly ¥7 trillion year-to-date, driving equity demand and supporting market rallies. Strong earnings, especially in domestic demand sectors, bolster investor confidence. This shareholder-friendly corporate behavior enhances return on equity and attracts foreign capital, notably from U.S. investors, reinforcing Japan's position as a compelling investment destination amid global market volatility.
Political Instability Disrupting Supply Chains
Ukraine’s conflict and political volatility have caused significant supply chain disruptions globally, including energy shortages and grain export restrictions. Rapid policy shifts, sanctions, and regulatory changes from multiple governments, including the US, have increased unpredictability. Businesses must adopt proactive legal and operational strategies to mitigate risks from sudden government changes and evolving trade policies.
Economic Stagnation and Recession Risks
Russia's economy is experiencing stagnation with GDP growth slowing to around 1.1% in early 2025, risking recession if high interest rates persist. Key sectors show contraction, and corporate losses are rising amid inflation and military spending. High borrowing costs and tight monetary policy are dampening investment and consumer demand, threatening long-term economic stability.
Economic Growth and Inflation Outlook
Thailand's economy is projected to grow modestly by around 2.2-2.3% in 2025, with inflation remaining subdued near 0.5-0.8%. Growth is supported by strong electronics exports and tourism spending but tempered by weakening private consumption and external headwinds. Fiscal stimuli and accelerated public investment aim to bolster growth, though risks from geopolitical tensions and domestic challenges persist.
China's Expanding Economic Influence
A study reveals China's influence in Indonesia's economy at 41.2%, encompassing trade, investment, and infrastructure. Concentrated mainly in western and central provinces, China's footprint extends to social, political, and academic domains. This growing presence shapes Indonesia's economic landscape and bilateral relations, with implications for sovereignty and strategic autonomy.
Government Fund Transfers to State Banks
Indonesia transferred Rp200 trillion from Bank Indonesia to five state-owned banks, yielding approximately 4% interest. This move aims to increase liquidity and stimulate credit distribution to support economic growth. The policy underscores government efforts to leverage state financial institutions for economic stimulus amid domestic challenges and fiscal pressures.
Brazil's Economic Performance and Monetary Policy
Brazil's GDP grew 0.4% in Q2 2025, driven by services and extractive industries, despite a slowdown from Q1. High interest rates (Selic at 15%) and investment declines persist, but household consumption remains resilient. The Central Bank's monetary policy and US interest rate decisions critically influence capital flows, exchange rates, and investment climate in Brazil.
Domestic Economic Strength and Challenges
Israel maintains strong macroeconomic fundamentals, including low unemployment, high GDP per capita, and demographic growth. However, high living costs and fiscal pressures from military spending pose challenges. These factors influence consumer behavior, investment attractiveness, and long-term economic sustainability.
Iran's Strategic Pivot East
Facing Western sanctions, Iran is deepening ties with China and Russia, seeking diplomatic and economic support to mitigate sanction impacts. However, these alliances are transactional and limited, with Beijing and Moscow unlikely to fully defy UN mandates, leaving Iran vulnerable to continued international isolation and economic pressure.
Economic Growth and Inflation Pressures
Vietnam's economy grew 7.5% in H1 2025, one of the fastest in the region, but inflation pressures are mounting with consumer prices up 3.24% year-on-year in August. The government targets 8.3-8.5% growth and 4.5-5% inflation for 2025, but global trade tensions and currency volatility pose risks to achieving these goals, impacting investment and consumption.
Federal Reserve Independence Under Threat
U.S. President Trump's attempts to influence Federal Reserve decisions, including firing members and pressuring rate cuts, raise concerns about the Fed's autonomy. Politicization of monetary policy risks undermining credibility, increasing market volatility, inflation, and borrowing costs, which could destabilize financial markets and complicate investment strategies globally.
Economic Growth Slowdown
South Korea's economy is projected to grow only 0.9% in 2025, marking the slowest pace since the pandemic shock in 2020. This sluggish growth is driven by external pressures such as US tariffs and internal political instability, impacting export-reliant sectors like semiconductors and autos, with ripple effects on global supply chains.
Activist Investors Shake U.S. Business Landscape
Activist investors are increasingly influencing major U.S. corporations, prompting strategic reassessments amid economic and political uncertainties. Their actions can lead to operational shifts, governance changes, and market volatility, affecting corporate performance and investor confidence in a complex regulatory and geopolitical environment.
Political Unrest and Market Volatility
Indonesia's 2025 political protests, sparked by economic inequality and government perks, have caused significant stock market declines and currency depreciation. The unrest has heightened political risk, increasing equity risk premiums and unsettling investor confidence, impacting foreign investment flows and market stability in the short term.
Strengthened Foreign Exchange Reserves
Egypt's foreign exchange reserves rose to $49 billion, the highest in years, supported by surging remittances, tourism, and Suez Canal revenues. Net foreign assets improved to $10.49 billion in July 2025, signaling enhanced external financial stability. This cushion reduces vulnerability to external shocks, stabilizes the currency, and improves investor confidence amid global economic volatility.
Deepening Brazil-China Economic Partnership
Chinese investments in Brazil doubled in 2024, reaching $4.18 billion across 39 projects, making Brazil the third largest global destination for Chinese capital. This surge spans energy, infrastructure, agriculture, and technology sectors, reflecting a strategic pivot towards China amid US trade tensions, and reshaping Brazil's international economic alignments and supply chain dependencies.
UK Stock Market Sector Performance
UK equity markets show mixed performance with gains in consumer staples, utilities, and financials, while travel and leisure sectors face headwinds. Rising bond yields and fiscal concerns influence investor behavior, with defensive sectors favored amid uncertainty. Sectoral shifts impact portfolio allocations and reflect broader economic trends, including consumer spending patterns and regulatory developments.
Vietnam's Robust Economic Growth
Vietnam's economy expanded by 7.5% in H1 2025, outpacing regional peers like Indonesia and Malaysia. Supported by strong exports, manufacturing, and logistics, the World Bank projects sustained growth despite global uncertainties. This momentum underpins Vietnam's ambition to become a high-income country by 2045, attracting investors seeking dynamic emerging markets with solid macroeconomic fundamentals.
Rising Cost of Living and Wage Stagnation
A significant majority of Canadians report financial strain due to rising prices for essentials like food and housing, outpacing wage growth. This cost-of-living crisis may dampen consumer spending, impact labor market dynamics, and necessitate policy interventions, affecting overall economic growth and business operating environments.
US Dollar Dynamics and Forex Market Impact
The US dollar exhibits unusual resilience despite expectations of weakening due to Fed easing. Geopolitical events and monetary policy shifts cause significant currency fluctuations, affecting international trade costs and investment returns. Forex market volatility demands sophisticated risk management strategies for multinational corporations and investors.
Corporate Sector Inertia
Pakistan's private sector shows significant potential but remains constrained by policy neglect, subsidies, and risk aversion. This inertia limits capital creation, innovation, and foreign direct investment, with FDI at only $1.785 billion through April 2025. The lack of ambition and talent flight hinders competitiveness, impacting international trade and investment attractiveness.
Geopolitical Risks in Metals Market
China's Zijin Mining highlights unprecedented global uncertainties in critical metals markets due to rising protectionism, trade barriers, and geopolitical conflicts. This intensifies competition for critical minerals, impacting prices, revenues, and overseas projects. Export controls and resource nationalism pose operational challenges, affecting global supply chains and investment strategies in metals essential for technology and infrastructure.
China-Pakistan Economic Corridor (CPEC) Relaunch
CPEC Phase II is set for relaunch with emphasis on industrial cooperation, Special Economic Zones, and infrastructure development. Despite past setbacks due to political and economic instability, renewed momentum is expected with improved macroeconomic indicators and stronger US-Pakistan relations. Successful execution is critical for boosting exports, job creation, and regional connectivity.
Renewable Energy Growth
Wind and solar power accounted for a record 34% of Brazil's electricity generation in August 2025, driven by rapid capacity expansion and supportive policies. This diversification reduces reliance on hydropower, enhances energy security, and creates economic opportunities. However, grid constraints and curtailments pose challenges, requiring strategic investments to sustain growth and attract further foreign capital.
Stock Market Performance and Sectoral Variations
Australian equities reached record highs buoyed by miners and banks amid US rate cut optimism. However, consumer staples and select corporates like Woolworths and Wisetech faced setbacks. These mixed sectoral performances reflect underlying economic shifts and investor sentiment, influencing capital allocation and market volatility.
Global Market Sensitivity to US Economic Data
US economic indicators, such as labor market data and inflation reports, significantly influence global equity markets, currency strength, and Treasury yields. Anticipation of Federal Reserve policy decisions drives investor sentiment and cross-border capital flows, underscoring the US economy's central role in global financial stability.
Climate Impact on Business Operations
Australian businesses are already experiencing the effects of climate extremes such as heatwaves, fires, and floods, leading to lower productivity, higher insurance costs, and supply chain interruptions. Industry groups emphasize the urgent need for improved national preparedness and adaptation strategies to mitigate financial risks and maintain operational continuity.
Geopolitical Instability and Political Risk Insurance Demand
Geopolitical tensions and economic uncertainties have led to substantial investment losses for UK businesses abroad. Interest in political risk insurance (PRI) has surged, mitigating losses from government interference, currency issues, and political violence. However, lack of awareness limits PRI uptake, highlighting a need for better risk management education among firms.
Economic Instability and Debt Crisis
Pakistan faces severe economic instability with public debt exceeding PKR 80 trillion and a debt-to-GDP ratio nearing 80%. Inflation remains high at around 29%, with food inflation surpassing 35%, eroding purchasing power and fueling public unrest. Reliance on IMF loans and external borrowing creates unsustainable fiscal pressures, deterring long-term investment and increasing default risk.
Economic Growth and Investment Outlook
UK economic growth forecasts have been downgraded to around 1.2% for 2025 and 1% for 2026, with sluggish demand and subdued business investment due to higher labor costs and global uncertainties. Surveys indicate reduced capital spending intentions, highlighting cautious corporate sentiment that may constrain long-term growth and productivity improvements.