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Mission Grey Daily Brief - July 02, 2024

Summary of the Global Situation for Businesses and Investors

The world is witnessing a new era of violence and conflict, with escalating global unrest and a rise in state-based conflicts. The war in Ukraine continues to rage on, with China's support for Russia's war efforts fuelling security concerns in Europe and Asia. France's parliamentary elections have resulted in a historic victory for the far-right National Rally, threatening economic stability and causing alarm among other nations. In the UK, the Conservatives are facing a catastrophic defeat in the upcoming July 4 election, with Labour's Keir Starmer poised to take the lead. Meanwhile, China's Belt and Road Initiative continues to expand its influence in Africa, and Azerbaijan is denying Western journalists access to the upcoming UN Climate Summit in Baku later this year.

France's Far-Right Victory

France's parliamentary elections have resulted in a historic victory for Marine Le Pen's far-right National Rally (RN) party, which secured 33.15% of the vote in the first round. This unprecedented outcome has sent shockwaves across France and the world, as the RN has never governed at the national level. The party's success can be attributed to economic issues, with voters trusting the RN more than its competitors when it comes to managing the French economy. However, experts are sceptical about the RN's economic platform, which includes various tax giveaways and costly promises. The second round of elections will take place on July 7, and the outcome remains uncertain. If the RN gains a majority, it could lead to a far-right government for the first time since the Nazi occupation during World War II.

China-Russia Alliance

US Secretary of State Antony Blinken has expressed concerns about China's support for Russia's war efforts in Ukraine. He warned that China is fuelling "the biggest security threat to Europe since the Cold War," a sentiment echoed by China's neighbours in Asia. China's assistance to Russia, including investments in its defence industrial base, has allowed Russia to sustain its aggression and continue the war. This has prompted calls for Europe to present Beijing with a stark choice: curb support for Russia or face consequences. Meanwhile, China continues to deny providing weapons to nations engaged in wars and asserts control over the export of dual-use items.

UK's July 4 Election

The UK's upcoming general election on July 4 is shaping up to be a significant moment for electoral democracy worldwide. The Conservatives, led by Rishi Sunak, are facing a potential catastrophic defeat, with Labour's Keir Starmer emerging as the frontrunner. Sunak's decision to call for an early summer election has backfired, as the Reform UK Party, led by Nigel Farage, gains momentum. The election will have implications for the UK's future, particularly regarding issues such as immigration and identity.

China's Belt and Road Initiative

China's Belt and Road Initiative (BRI) continues to expand its influence in Africa, with Nigeria's Foreign Minister highlighting the positive impact of BRI projects in the country. The BRI has facilitated the construction of roads, bridges, and power generators in Nigeria, as well as created much-needed jobs. The Nigerian Foreign Minister refuted the "debt trap" narrative, calling it an "insult" to African countries. He expressed expectations for deeper ties with China and a desire to expand cooperation in areas such as electric vehicles.

Azerbaijan Denies Access to Journalists

Azerbaijan is denying Western journalists access to the upcoming United Nations Climate Summit (Cop29) in Baku later this year. <co: 4,24,44>At least three journalists from Britain and France</


Further Reading:

An unprecedented victory for a historically antisemitic right-wing party in France, and now the world holds its breath - Forward

Australia urged to provide 'emergency uplift' visa for Palestinians fleeing Gaza war - Arab News

Azerbaijan Denying Western Journalists Access Ahead of Climate Summit, The Guardian Reports - Asbarez Armenian News

BRI helps Africa build infrastructure, create much-needed jobs: Nigerian FM - People's Daily

Belarus threatens nuclear use as Russia blamed for jamming GPS - Ukraine: The Latest, Podcast - Yahoo! Voices

Blinken warns of threat to Europe as China helps Russia ‘sustain Ukraine war’ - South China Morning Post

China sets stage for violent crackdown: ‘Taiwan is a rebel regime’ - Washington Examiner

Conservatives are racing toward a catastrophic defeat in U.K.'s July 4 election - America: The Jesuit Review

France Elections: Economic Issues Drove Far-Right Win in First Round - Foreign Policy

France election 2024: Live updates and latest news - The Associated Press

France elections 2024: Le Pen's far right wins. Now the horse-trading begins - NPR

France’s exceptionally high-stakes election has begun. The far right leads pre-election polls. - NBC News

From Ukraine and Syria to Sudan and Gaza, a new era of violence and conflict unfolds - Arab News

Themes around the World:

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US Government Shutdown Impact

The looming US government shutdown threatens to disrupt federal services, delay economic data releases, and dampen investor confidence globally. Prolonged shutdowns can reduce US imports, delay export licenses, and disrupt supply chains, affecting international trade and investment. The political stalemate raises concerns about US fiscal stability, potentially increasing borrowing costs and undermining the dollar's reserve currency status.

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Financial Sector Legal Risks and Credit Market Caution

A R4.8 billion SARS lawsuit against Sasfin Bank for alleged tax violations risks exposing banks to indefinite liability, raising systemic concerns. Concurrently, investors are cautious on South African corporate bonds due to economic stagnation and illiquid markets, suggesting elevated credit risk and potential volatility in financial instruments.

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Financial Sector Restrictions and Banking Isolation

Sanctions impose stringent controls on Iranian banks, restricting access to international financial networks and complicating cross-border transactions. This financial isolation hampers foreign investment, trade financing, and remittances, increasing operational risks for multinational companies and financial institutions.

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Energy Transition and Renewable Investments

Saudi Arabia is aggressively reducing domestic oil consumption by expanding renewable energy capacity, targeting 130 GW by 2030. This shift supports Vision 2030 goals, frees up crude for export, and positions the Kingdom as a future clean energy exporter. However, implementation pace and market valuation of renewable firms remain challenges for investors.

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Monetary Policy and Currency Fluctuations

The Bank of England’s dovish stance amid persistent fiscal headwinds has pressured the British pound, impacting exchange rates and international trade competitiveness. Interest rate policies and inflation outlooks remain critical for business investment decisions, influencing cost of capital and cross-border financial flows.

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Monetary Policy and Inflation Dynamics

The Central Bank of Egypt (CBE) is actively managing inflation through interest rate adjustments, having cut rates by 525 basis points in 2025 amid easing inflation pressures. Inflation remains elevated but is on a downward trend, with headline inflation at 12% in August 2025. Monetary policy aims to balance growth stimulation with price stability, crucial for investor confidence and economic stability.

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US-China Trade Conflict Impact

Mexico is caught in escalating US-China trade tensions, facing punitive tariffs from the US on pharmaceuticals and retaliatory investigations from China on Mexican exports. This dual pressure threatens Mexico's trade flows, supply chains, and investment climate, forcing companies to reassess regional strategies and supply chain dependencies amid rising protectionism.

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Industrial and Technological Revitalization

Japan is emphasizing industrial policy focused on semiconductors, advanced manufacturing, and energy security under Takaichi's leadership. This strategic pivot aims to enhance technological sovereignty and supply chain resilience, aligning with global trends toward economic security. Increased public spending and partnerships with industry are expected to drive innovation and competitiveness in key sectors.

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Geopolitical Tensions and Regional Security

Renewed sanctions coincide with heightened military tensions involving Iran, Israel, and the US. Iran’s control over the Strait of Hormuz provides leverage to disrupt global oil flows, raising risks of regional instability. Proxy conflicts and asymmetric responses threaten Gulf security and global energy supply chains.

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Geopolitical and Defense Dynamics in Indo-Pacific

Australia's strategic role is underscored by the continuation of the AUKUS pact and planned US nuclear submarine sales, reflecting heightened defense spending and regional security concerns amid China-Taiwan tensions. Additionally, Australia's new defense pact with Papua New Guinea signals efforts to counterbalance China's influence, affecting geopolitical risk assessments for investors.

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Tax Hikes to Fund Defense Spending

To address budget deficits amid sanctions and war costs, Russia plans tax increases on the wealthy, corporations, and VAT (from 20% to 22%). While aimed at sustaining defense expenditures, these hikes may burden consumers and businesses, potentially dampening economic growth and affecting profitability for domestic and foreign firms operating in Russia.

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Rupiah Exchange Rate Dynamics

The Indonesian rupiah has shown volatility influenced by external factors such as US Federal Reserve policy signals and the US government shutdown. Anticipated Fed rate cuts and delayed US economic data releases affect rupiah strength, impacting trade competitiveness, foreign investment flows, and monetary policy effectiveness in Indonesia.

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Semiconductor Industry's Geopolitical Centrality

Taiwan dominates global semiconductor production, especially advanced chips vital for AI and electronics, with TSMC at the core. The sector's growth amid AI demand heightens Taiwan's strategic importance but also increases risks from Chinese military threats, potential blockades, and supply chain disruptions, which could trigger global economic shocks and reshape investment and trade flows.

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Stock Market Volatility and Sectoral Impacts

The Paris stock market (CAC 40) has experienced sharp declines amid political turmoil, with bank shares particularly hit due to their sovereign debt exposure. Key sectors like luxury goods and real estate also face pressure. Despite this, some sectors such as semiconductors have shown resilience, supported by global tech partnerships, partially offsetting losses.

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Market Repricing Following Political Leadership Change

Sanae Takaichi's rise as LDP leader and probable first female prime minister triggered a sharp market rally, with equities hitting record highs and the yen weakening. Investors anticipate increased fiscal stimulus, strategic industry support, and a dovish monetary stance. This repricing reflects renewed optimism in Japan's economic revival but also heightens volatility and fiscal sustainability concerns.

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Economic Openness and Trade Integration

Egypt improved its ranking in Fitch’s Economic Openness Index, reflecting enhanced foreign investment inflows and expanded trade flows. Reforms such as simplified investment procedures, the establishment of the Supreme Council for Investment, and the 'Golden License' initiative have reduced bureaucratic barriers, fostering a more competitive and open economy poised to increase exports and attract global capital.

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Economic Growth Challenges and Monetary Policy

South Korea's economic growth remains subdued, with Q4 2024 GDP barely expanding amid political instability and weak domestic demand. The Bank of Korea is expected to cut interest rates to support growth, balancing currency stability concerns. Persistent low growth forecasts and demographic challenges underscore the need for sustained fiscal stimulus and structural reforms to maintain economic momentum.

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Financial Market Volatility and Currency Outlook

Mexico's financial markets exhibit sensitivity to global uncertainties, with the peso showing resilience and potential appreciation linked to upcoming USMCA trade talks. Market volatility around major corporate earnings and US government shutdowns affects investor sentiment, influencing capital flows and exchange rate stability.

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Raw Material Export and Downstreaming Policy

Indonesia's government emphasizes mineral downstreaming to capture added value domestically, moving away from raw material exports that primarily benefit foreign countries. While this policy aims to boost regional economic equality and industrialization, it faces criticism over environmental impacts and community rights, highlighting the balance between economic development and sustainability.

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Foreign Institutional Investor (FII) Outflows

Sustained foreign portfolio investor selling has pressured Indian equities, driven by geopolitical tensions, tariff concerns, and global risk-off sentiment. FIIs have sold billions in Indian stocks since 2024, contributing to market volatility and rupee depreciation. While domestic institutional investors provide some support, continued FII outflows could dampen liquidity, valuations, and capital availability for Indian companies.

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Geopolitical Risk and Volatility

Geopolitical risk has surged globally, rising from 21st to 9th place in business risk rankings between 2023 and 2025, with further increases expected by 2028. This volatility impacts international trade, supply chains, and investment strategies, especially in Asia and Europe, where geopolitical tensions are intensifying and influencing corporate decision-making and market dynamics.

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European Central Bank's Monetary Support

The ECB continues to intervene through bond purchases and liquidity injections to stabilize French debt markets, effectively enabling fiscal deficits. However, this monetary support risks eroding fiscal discipline and monetary stability, creating a dependency that may limit future policy flexibility and impact Eurozone financial stability.

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Mergers and Acquisitions Surge in South Korea

South Korea's M&A market rebounded sharply in Q3 2025 with a 44% increase in deal value, driven by conglomerate restructuring and asset sales. UBS and Kim & Chang lead financial and legal advisory roles, respectively. Strong activity in acquisition financing and capital markets reflects robust corporate investment and restructuring, signaling dynamic shifts in South Korea's business landscape.

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Economic Resilience Amid Global Uncertainty

Despite global trade tensions and restrictive fiscal policies, Mexico's economy shows resilience with modest growth, stable inflation, and strong foreign direct investment. Export growth, especially outside the US market, and a stable peso support economic stability. However, sustained low growth challenges job creation and long-term prosperity, necessitating structural reforms and infrastructure improvements.

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Political Instability and Leadership Transition

Japan faces political uncertainty with Prime Minister Ishiba's resignation and the likely appointment of Shinjiro Koizumi. This leadership change introduces policy unpredictability, potentially delaying economic reforms and impacting investor confidence. The new administration's approach to fiscal policy and structural reforms will influence Japan's economic trajectory and international business environment.

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Vision 2030 Diversification Momentum

Saudi Arabia aims to sustain 4.5%-5.5% annual non-oil growth over the next decade, driven by Vision 2030 initiatives. Key sectors include services, tourism, and mega events like the 2027 AFC Asian Cup and 2034 FIFA World Cup. This diversification reduces oil dependency, attracting private investment and reshaping the economic landscape.

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Monetary Policy and Inflation Dynamics

The Central Bank of Egypt (CBE) has progressively cut interest rates by 525 basis points in 2025 amid easing inflation, which fell to 12% in August. Despite inflation risks from regulated price hikes and geopolitical tensions, the CBE aims to sustain disinflation while maintaining positive real rates to support economic stability and investment.

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Impact of Low-Cost Chinese Imports

Cheap Chinese imports, often accused of dumping, are undermining Thai manufacturers, causing factory closures and a 2% decline in industrial output. Key sectors like automotive, steel, and consumer goods face intense competition, pressuring local SMEs and contributing to deflationary trends, despite Chinese investments in Thailand's industrial sectors.

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Key Canadian Stocks Driving Market Activity

Leading Canadian companies in energy, transportation, financial services, and consumer goods—such as Canadian Pacific Kansas City, Canadian Natural Resources, and Canadian Imperial Bank of Commerce—are pivotal in shaping market trends. Their performance reflects broader economic health and investment sentiment in Canada.

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Trade and Diplomatic Relations with Central Asia

Iran's trade ties with Central Asian countries, including Tajikistan, face uncertainty due to sanctions. While oil exports remain a key economic driver, banking and shipping restrictions may disrupt regional commerce. Iran's focus on small and medium enterprises and domestic production aims to offset external pressures and sustain regional economic engagement.

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Sovereign Debt Expansion

Saudi Arabia is negotiating a rare $10 billion sovereign loan amid a debt issuance spree to fund economic transformation. Despite a relatively low debt-to-GDP ratio (~30%), increased borrowing reflects fiscal pressures from lower oil prices and ambitious spending, raising concerns about debt sustainability and fiscal discipline.

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Record Foreign Direct Investment

Brazil closed 2024 with a record US$1.141 trillion in foreign direct investment, equivalent to 46.6% of GDP. This marks a significant increase from 6.1% in 1995, reflecting growing foreign control over Brazilian companies, particularly in financial services, commerce, electricity, and oil extraction. This inflow boosts installed capacity and productivity, but currency depreciation impacts dollar valuations.

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Declining Wealth of Russian Billionaires

Russian billionaires have lost significant global wealth and influence, with only six remaining in the global Top 100. Their fortunes are largely confined to domestic or neighboring markets, lacking international diversification. This decline reflects broader economic challenges and limits Russia's capacity to attract global capital and sustain high-net-worth investment-driven growth.

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Impact on Consumer and Business Sentiment

Political instability has negatively affected both consumer confidence and business sentiment, leading to cautious spending and investment behavior. This dampening effect on domestic demand and corporate activity could slow GDP growth, currently projected at a modest 0.8% for 2026, below Eurozone averages.

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Economic and Social Impact of Sanctions

Sanctions exacerbate inflation, currency depreciation, and unemployment in Iran, shrinking the middle class and increasing poverty. These pressures fuel corruption, reduce social trust, and heighten risks of civil unrest and radicalization, undermining social cohesion and complicating Iran’s internal stability and governance.

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Energy Sector Transition and North Sea Oil Uncertainty

The UK government’s shift towards greener energy policies introduces regulatory and fiscal pressures on North Sea oil and gas operations. Stricter environmental regulations and higher taxes challenge fossil fuel companies, while the government maintains a pragmatic stance on energy mix. This transition impacts investment decisions and the future viability of the UK’s traditional energy sector.