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Mission Grey Daily Brief - June 28, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains complex, with the war in Ukraine continuing to rage and causing significant disruptions. The conflict has led to increased cooperation between Russia, China, North Korea, and Iran, raising concerns about global security. Meanwhile, the Communist Party in China faces questions about its ability to address the country's economic challenges. In the UK, a betting scandal involving members of the Conservative Party and Prime Minister Rishi Sunak's security detail has emerged, while in El Salvador, President Nayib Bukele has ordered the mass firing of 300 employees from the Culture Ministry. Lastly, international experts warn of a growing famine crisis in Sudan, with 755,000 people at risk in the coming months.

Ukraine-Russia War

The war in Ukraine continues to rage, with Russia targeting Ukraine's energy infrastructure, causing chronic power cuts and aiming to make cities unlivable. This systematic destruction is considered a war crime under international law, and it has already wiped out 50% of Ukraine's electricity-generating capacity. The conflict has also resulted in the world's largest displacement crisis, with over 11 million people forced to flee their homes. The war has now been ongoing for almost two and a half years, and Ukraine is facing significant challenges in terms of mobilization and government fatigue.

Growing Cooperation Between Russia, China, North Korea, and Iran

The US has flagged a growing threat to global security as Russia deepens its cooperation with China, North Korea, and Iran. This quasi-alliance now covers weapons sales, energy, and finance, with Russia seeking assistance for its war in Ukraine. The four countries are also increasing their space collaboration, with Russia launching an Iranian satellite and plans for a Russo-Chinese lunar nuclear power plant. Additionally, Russia and North Korea have revived a mutual defense agreement, with both nations pledging military assistance to each other in the event of war. This growing partnership adds complexity to the already contested space domain and has raised concerns among US officials.

China's Communist Party Faces Challenges

With China's economy facing vulnerabilities, investors, analysts, and business leaders are questioning whether the Communist Party is willing and able to design and execute an effective response. The upcoming meeting of the party's Central Committee on July 15 will be an opportunity for China's leaders to address these concerns. However, it seems more likely that the meeting will highlight the gap between the party's rhetoric and its actions.

UK Betting Scandal

In the UK, a betting scandal has emerged, involving members of the Conservative Party and Prime Minister Rishi Sunak's security detail. Up to 15 Conservative Party members are being investigated by the Gambling Commission for allegedly using insider information to place bets on the surprise election date announced by Sunak. This scandal has led to the withdrawal of support for two MPs and the suspension of several individuals, including a police officer assigned as a bodyguard to the Prime Minister.

El Salvador's Culture Ministry Firings

In El Salvador, President Nayib Bukele has ordered the mass firing of 300 employees from the Culture Ministry, stating that they were <co: 13,33,5


Further Reading:

'Ukrainians have reached the stage where, exhausted by a sprint, they realize they actually have to run a marathon' - Le Monde

A clear-eyed account of Ukraine under siege - The Economist

A pivotal moment for China's Communist Party - The Economist

A space quad: Russia, China, North Korea and Iran - Asia Times

Breaking Down the U.K. Election Betting Scandal - TIME

El Salvador Plans Mass Firing of Culture Ministry Employees - U.S. News & World Report

Experts Warn That 755,000 People at Risk of Famine in the Coming Months in War-Torn Sudan - U.S. News & World Report

Experts warn that 755000 people at risk of famine in the coming months in war-torn Sudan - KSTP

Experts warns that 755,000 people at risk of famine in the coming months in war-torn Sudan - Yahoo! Voices

Themes around the World:

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RegTech Industry

The UK's RegTech industry is expected to grow by 24.9% annually, reaching US$657.84 million in 2024. This growth is driven by technological advancements, regulatory pressures, and the need for efficient compliance solutions, with a focus on anti-money laundering and identity verification.

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Energy Market Reforms

Proposed reforms to the UK's energy market, including zonal pricing, have sparked debate. While some argue that zonal pricing will reduce costs and encourage investment in renewables, others fear it will lead to higher bills for energy-intensive industries and raise costs for clean energy developers, potentially impacting the UK's climate goals and consumer bills.

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Reshoring Medicine Production

The French government is promoting strategic objectives of reshoring medicine production and keeping manufacturing jobs in the country. This is evident in the sale of Sanofi's Opella to a US investment fund, where the government secured guarantees for production and jobs to remain in France. The government is also taking steps to invest in domestic pharmaceutical production, as seen during the COVID-19 pandemic, to ensure the availability of critical medicines and boost local manufacturing.

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Consumer Confidence and Spending

China is facing low consumer confidence and a decrease in spending, exacerbated by the COVID-19 pandemic and changing consumer tastes. This is impacting economic growth, and stimulus measures may not be enough to encourage higher consumption.

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Russia Sanctions

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting 43 vessels to date. This action aims to curtail Russia's ability to bypass sanctions and sustain its war efforts through illicit oil exports, while also addressing environmental and trade security risks posed by the fleet.

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Political Instability

France's political landscape is precarious, with President Macron's gamble on new elections leaving Prime Minister Barnier's government without a majority in parliament. The leftist NFP alliance and the far-right National Rally could join forces to bring down the government, causing potential rudderlessness until at least July 2025.

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EU Spending Rules and Debt Challenges

Germany faces challenges in meeting the stringent EU spending rules it advocated for, as its economy struggles. The country is considering spreading out planned spending cuts over a longer period. Germany's debt and borrowing limits impact its ability to invest in infrastructure, military, and other areas.

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US-China Competition

Competition with China is a central issue in US politics, with economic growth, military aspects, and supply chain disruptions as key dimensions. China's lead in battery technology and production has put the US at a disadvantage, and US policy aims to boost domestic industries. US-China tensions over Taiwan also threaten global economic stability.

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Digital Services Tax Hike

France is considering raising the Digital Services Tax (DST) from 3% to 5%, which could damage the economy and inflame trade tensions with the US. It may hinder digital trade and job creation, and undermine global tax talks, setting a destabilizing precedent for other countries.

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Xi Jinping's Policies

Xi Jinping's leftward turn and strict control of the economy have led to an exodus of businesses from China. His policies, including the disastrous zero-COVID-19 approach, have undermined growth and consumer confidence, contributing to the country's economic woes.

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Food Security and Climate Nexus

Environmental, economic, and political shocks have led to food insecurity for over 250 million people globally. Climate change, conflict, and supply chain issues impact food availability and access. Food security is a growing concern, with China investing in agriculture to assert leadership, especially in the Global South. US leadership is essential to strengthen partnerships and address food security challenges.

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US Economic Performance

The US economy is strong, with positive indicators in equity markets, retail sales, and job creation. However, inflation remains a key concern for voters, and experts warn that Trump's proposed tariffs could lead to higher prices and impact geopolitics.

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Conflict with Iran

Tensions with Iran have escalated due to Iran's ballistic missile attacks and Israel's retaliation. Israel's strikes on Iran's air defense network have increased Iran's vulnerability to future attacks, potentially impacting oil supply and prices globally.

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Military Spending and Economic Impact

Israel's war against Hamas and Hezbollah has led to soaring military spending, straining government budgets and causing concerns about long-term economic effects. The conflict has hurt growth, labor supply, and investment, with security worries deterring new business. However, Israel's economy remains strong, with a diversified, highly developed structure, a robust IT sector, and low unemployment.

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Israel-Iran Conflict Escalates

Israel's unprecedented direct attack on Iran has widened vulnerabilities and brought the Middle East closer to a full-scale conflict. Israel targeted Iranian air defense systems and military sites, while avoiding oil infrastructure, leading to a drop in oil prices. The US deploys military support to Israel, escalating tensions with Iran.

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Thailand's International Trade Relations

Thailand is seeking the renewal of tariff benefits under the Generalized System of Preferences (GSP) from the US. Thailand's Commerce Minister emphasized the country's potential as a manufacturing base in the supply chain for key US industries, including digital, AI, electronics, and semiconductors. Thailand also invited US investment in its food industry, highlighting its strength in food security and export potential to emerging markets.

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Climate Change and Natural Disasters

Thailand and other Asian countries have experienced intensifying storms, floods, and other extreme weather events due to climate change, causing economic losses and impacting supply chains. Typhoon Yagi in 2024 caused destruction and displacement in Thailand and neighboring countries, highlighting the need for preparedness and adaptation measures.

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Seaborne Trade Resilience

Despite intensified rocket attacks on Ukrainian ports and civilian ships, seaborne trade in Ukraine remains resilient. Maersk has resumed regular service to Ukraine, launching a new weekly container service. This move signals a commitment to enhancing efficiency and interaction with customers in the Ukrainian market, even amidst challenges such as high insurance premiums and vessels turning off AIS signals in Ukrainian waters.

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US-China Technology Race

China is investing heavily in next-generation technologies, such as solid-state batteries and advanced chip manufacturing, threatening US dominance. The US risks falling behind in the global battery race and losing its competitive advantage.

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Healthcare Supply Chain Concerns

The potential sale of Opella, which produces France's bestselling drug Doliprane, has raised concerns about medication supply chain security. The Covid pandemic exposed vulnerabilities, with medication bottlenecks blamed on outsourcing production to foreign countries. The French government has emphasized the strategic importance of reshoring medicine production and securing supply chains.

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Healthcare Reforms and EU Alignment

Ukraine's healthcare system is under immense strain due to frequent attacks on its infrastructure. However, the country remains committed to healthcare reforms and is using the crisis as an opportunity to align its health sector with EU rules in preparation for future EU accession talks. This includes harmonizing policies and regulations in areas such as drug manufacturing, water quality, and patient movement.

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Oil Market Impact

Israel's strikes on Iran spared oil infrastructure, causing a drop in oil prices as the market anticipated no supply disruptions. However, the conflict's escalation could still impact oil supply in the future.

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India's Trade Strategies

India is adopting a more cautious negotiating strategy after free trade agreements (FTAs) resulted in higher imports than exports. Talks with smaller countries like Oman and Peru are paused, with a shift towards larger markets like the EU and UK. India aims to streamline the process of negotiating trade deals and address concerns over investment outflows and errors in previous agreements. The focus is on maximizing export gains and exploring new markets to address oversupply issues.

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Controversial sale of Sanofi's Opella

The planned sale of a controlling stake in Sanofi's consumer healthcare arm, Opella, to a US private equity firm has sparked controversy in France. Politicians and unions from across the spectrum warn of a "loss of sovereignty" and risks to manufacturing jobs and supply chains. The French government has responded with penalties for offshoring and agreements to maintain production and jobs in France, while also welcoming foreign investment in the medicine sector.

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US-India Relations

The US-India relationship is crucial for both countries, with the US being India's largest trade partner. The outcome of the 2024 US presidential election will impact India's exports, investments, and economic growth, especially in defence, trade, and strategic sectors. The election of Donald Trump could bring challenges due to his stance on tariffs and immigration.

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Property Market Crisis

China's property market is facing significant challenges, with a burst property bubble and falling real estate prices. The government has responded with stimulus measures, such as quicker credit for developers and support for renovations, but analysts argue that more needs to be done to address the market's structural issues and prevent a potential global recession.

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US-China Competition

Competition with China is a central issue in US politics, with economic growth, military aspects, and supply chain disruptions as key dimensions. China's lead in battery technology and production has put the US at a disadvantage, and US policy aims to boost domestic industries. China's actions towards Taiwan also threaten global economic stability.

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Aviation Industry Struggles

The German electric aircraft manufacturer Lilium N.V. is facing challenges with its German subsidiaries due to the failure to secure a government-backed loan. This has led to insolvency proceedings, impacting stakeholders and potentially disrupting future investments. The company's international competitors are receiving grants and loans from their respective governments, creating a difficult environment for Lilium to retain market confidence.

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Military Buildup and Geopolitical Tensions

Japan is in the midst of its largest military buildup since World War II, with a $320 billion plan that includes long-range missiles capable of hitting targets in China, North Korea, and Russia. This shift in policy has led to cyberattacks from Russian-linked hacking groups, targeting Japanese logistics, shipbuilding, manufacturing, and government agencies.

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UK's Defence Strategies

The UK is considering its defence strategies, including the purchase of F-35 fighter jets or the development of a new-generation crewed combat aircraft with Italy and Japan. Lockheed Martin, the manufacturer of the F-35s, has highlighted the economic benefits of the programme to the UK, but there have been frustrations over the high cost and delays in weapon integration.

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Economic Contraction and Recession

Germany is facing its second consecutive year of economic contraction, with a projected 0.2% decline in GDP for 2024, following a similar downturn in 2023. This is due to a combination of conservative public investment, over-reliance on manufacturing and exports, external shocks like the Russia-Ukraine conflict, and high inflation. The country's export-oriented economy has not grown strongly since 2018 due to structural problems and geopolitical challenges.

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Russian Hacking Campaign

Russia's hacking campaign against Georgia's government, companies, and infrastructure aims to thwart its westward path and pro-Western aspirations. This includes infiltrating key ministries, the energy sector, and telecommunications networks, with potential sabotage and intervention in domestic politics.

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Political Uncertainty

Japan's recent parliamentary elections resulted in Prime Minister Shigeru Ishiba's ruling coalition losing its majority, creating political uncertainty. This could impact the Bank of Japan's monetary policies and the country's market rally, which has experienced one of its strongest rallies in decades, with the Nikkei 225 index up nearly 50% since 2023.

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Global Manufacturing Woes

The global manufacturing industry is weakening, with major regions like the US, Eurozone, Japan, and China experiencing declining activity. This is causing supply chain problems and delays, especially in the Eurozone, while countries like the UK and India are showing modest growth.

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India-Canada Diplomatic Tensions

India-Canada diplomatic ties have hit a low due to accusations by Canadian officials of Indian government agents' involvement in murder and extortion. While no economic retaliation has been imposed yet, experts warn of potential negative consequences for economic growth. Bilateral trade is worth billions, and the rift raises concerns over trade and immigration ties, with businesspeople from both countries possibly seeking opportunities elsewhere. Visa restrictions and delays in immigration processing are also areas of worry.

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Leadership Transition in Family Businesses

Germany's renowned Mittelstand, comprising mostly family-owned businesses, faces challenges in leadership transition. As patriarchs retire, many struggle to find heirs interested in continuing the business, leading to ownership succession issues. This is further exacerbated by high corporate tax rates, rising energy costs, and bureaucratic complexities.