Wednesday 02/04/25

In China launches large-scale military exercises around Taiwan (Financial Times, Kathrin Hille) we see that China turned things up a notch by conducting large-scale military and coastguard drills around Taiwan. The People’s Liberation Army sends aircraft and ships into the airspace and waters around Taiwan most days, on “combat readiness patrols”. Interestingly, the Taiwanese military embarked on its own snap readiness drill – only the second time it has done so outside its normal annual training schedule. Tensions continue to mount as these exercises can very easily tip into an actual invasion…

Then in Italy’s Leonardo given £165m UK military helicopter contract (The Guardian, Joanna Partridge) we see that the British government has granted Italian defence company Leonardo a £165m contract extension for maintaining the Royal Navy’s fleet of 54 Merlin helicopters in an example of the UK’s increase in defence spending and perhaps the growing willingness to “buy European”. This order will help to support 1,000 jobs across the whole UK supply chain. The Merlins are “submarine hunters…[that are] capable of intercepting pirates and drug runners, saving the lives of stricken mariners, and delivering stores and people”, according to the MoD. They are built in Yeovil in the UK’s last remaining helicopter factory.

There were some interesting stories today about the effect of Trump and Musk’s respective influence. US labour watchdog halts Apple cases after Donald Trump picks group’s lawyer for top job (Financial Times, Michael Acton) shows that the National Labor Relations Board has frozen two cases against Apple just days after Morgan Lewis & Bockius partner Crystal Carey, who acted in Apple’s defence, was made head of of the US labour watchdog 😱. Conflict of interest much?? Then Shares of Trump-friendly Newsmax leap 2,200% after Wall Street debut (Financial Times, Anna Nicolaou, Antoine Gara, George Steer and Alex Rogers) shows that Trump’s longtime friend, Christopher Ruddy (let’s call him “the Ruddy Buddy”) has become a multibillionaire thanks to shares in his right-wing Newsmax TV company shooting up by over 2,200% since its Monday flotation. Ruddy Buddy said “Newsmax is rising because Americans like you are tired of incredible media bias, now reaching a dangerous level”. Newsmax listed at $10 on Monday and they closed yesterday at $233!!! * SO WHAT? * It feels like there’s something strange going on here. Yesterday’s share price rise gives Newsmax a $20bn valuation, not much short of Fox Corp, which is worth $24bn. This is bizarre because Fox made $14bn in revenues in fiscal 2024 – Newsmax made $171MILLION. Is this another meme stock example? Does it highlight

how beneficial it is to be vocal about being a Trump supporter? Or is it just a good company with bright prospects?? This move is not normal.

Moving onto Musk-related influence, Elon Musk-backed candidate loses Wisconsin race as liberals surge (Financial Times, Joe Miller and Myles McCormick) shows that Musk was dealt a bit of a blow as the candidate he backed in Wisconsin to become Supreme Court judge lost despite Musk backing his campaign to the tune of $25m. Liberal judge Susan Crawford won instead. * SO WHAT? * This is a bit of a blow to Musk’s political credibility outside Washington but I’m sure he will take it in his stride. Is this just a blip or a sign of things to come elsewhere as voters react to the new administration?

Then in Elon Musk’s X asks Supreme Court to shield users from US government (Financial Times, Joe Miller and Hannah Murphy) we see that X has filed a brief to the high court saying that platforms should “not be coerced into helping governments undermine their users’ privacy” as it intervened in a case that could force the federal government to produce a warrant to access private data. * SO WHAT? * It seems to me that there is a bit of a conflict going on here given Musk’s desire for freedom of speech and Trump’s desire for controlling the narrative. Remember that it was only last month that the Department of Homeland Security suggested collecting social media account handles from visa applicants and candidates wanting to apply to live in the US…

Meanwhile, in tariff-related developments, Keir Starmer braced for Trump tariffs as UK seeks better outcome than EU (Financial Times, George Parker, Peter Foster, Adrienne Klasa and Andy Bounds) highlights trepidation in Downing Street ahead of the “Liberation Day” tariff announcements. At the moment, it looks like we might get away with lower tariffs than the EU but EU has a ‘strong plan’ to retaliate on Trump tariffs, says von der Leyen (The Guardian, Jennifer Rankin) says that the EU stands ready to push back if Trump gets feisty on tariffs. In the ensuing panic, Investors flock to gold funds as fears over Trump tariffs mount (Financial Times, Leslie Hook and Ian Smith) shows that investors are piling into gold funds at their fastest pace since the pandemic and Gold prices hit record high over worries on impact of US tariffs (The Times, Mehreen Khan) reflects yet another new high of $3,120.20 per ounce as gold has had its best quarter since 1986!

In US consumer news, About a third of Americans stop buying eggs due to rising costs, study shows (The Guardian, Marina Dunbar) shows that high egg prices caused by the recent spread of bird flu have prompted 34% of Americans to stop buying eggs! 61% are eating fewer eggs because of the cost, 44% are using fewer and 42% have seen other shoppers “panic-buying” eggs. The average price of a box of eggs (12?) is now $5.18 versus an average of $1.49 in 2018. As if American consumers don’t have enough to worry about!

Meanwhile, Trump Tariff Threat Mobilizes Car Shoppers (Wall Street Journal, Christopher Otts) shows that American dealerships have been seeing an uptick in sales as buyers try to beat the tariffs. * SO WHAT? * In the short term, this is great – the head of Hyundai’s North America business said that the last weekend was the busiest he’d seen in over 15 years. However, you would have thought that sales will shortly drop off a cliff given that cars are big ticket items and consumer confidence is a bit iffy at the moment. Affordability will become even worse because new vehicle prices increased by about a third from 2019 to 2024 – and when you add the new tariffs, prices will rise by around 12% on average.

BYD car sales soar as Tesla struggles in Europe (Financial Times, Kana Inagaki) reiterates the trends that we’ve been seeing recently – that BYD’s sales are flying (they were up by 58% in Q1) and Tesla’s sales look like they are dying. BYD saw strong domestic demand for its hybrid cars and has been making solid progress in overseas markets. Tesla’s official sales figures are due to be announced today but we’ve already seen weakness in Europe.

Regarding British consumers, UK food inflation increases as shoppers buy Easter eggs early (The Guardian, Sarah Butler) cites the latest figures from Kantar which show that food inflation

increased in March thanks to rising chocolate and confectionary prices, but that hasn’t stopped us all from buying Easter eggs! In terms of market share, Lidl is the fastest growing supermarket chain with a share of 7.8%, less than one percentage point behind Morrisons. The only supermarket to lose ground in terms of market share was Asda, which is in the midst of turnaround efforts, the benefits of which clearly aren’t coming through just yet. Interestingly, Ocado saw the biggest increase in sales overall.

House prices up 4% as buyers race to beat stamp duty deadline (The Times, Tom Saunders) highlights the effects of the buyer stampede to beat the stamp duty deadline. However, this rate of increase held steady from the previous month, according to the latest figures from Nationwide. * SO WHAT? * You would have thought that the market will be quiet for the next few months as everyone gets used to higher bills and lets the dust settle a bit on Trump’s tariffs. Taking a positive spin on things, it’s possible that the market will come back to life again given the low unemployment rate, real earnings rising, reasonably robust household balance sheets and the potential for the Bank of England to shave a bit more off interest rates.

Minimum wage and national insurance rises ‘will hurt the young’ (The Times, Mehreen Khan) cites the latest research from the Institute of Fiscal Studies which says that the rise in employer NICs and hike in the minimum wage is going to hit the young end of the employment market particularly acutely. The national minimum wage, when adjusted for inflation, has effectively risen by 14% for workers aged 16 to 17, by 12.7% for 18-20 year olds versus 7% for an “adult worker”. * SO WHAT? * In terms of sectors, hospitality will suffer given that it employs over 25% of all 18 to 20 year-olds in work. Employers here will see a 3.8% rise in costs while employers in the retail sector are likely to see their wage bills rise by just over 3%.

China’s AI race creates tension at home (Financial Times, Lex) follows on from what I was saying last week about DeepSeek’s wider effect on its AI rivals and says that the gap with DeepSeek is getting wider as definite winners and losers are emerging. * SO WHAT? * Last week’s release of DeepSeek’s V3 model and Alibaba’s Qwen series, which can run on mobile phones, narrows the gap with the American players but also brushes aside domestic rivals in the process. Tencent and Alibaba have managed to continue to ride the AI wave while Baidu has floundered. Whoever can win the most government contracts is likely to be the long-term winner! The race is on!

Chinese megabanks’ interest margins fall to record low as economy slows (Financial Times, Thomas Hale and Cheng Leng) highlights difficulties at China’s six biggest lenders as their net interest margin (NIM) – which is the difference between what a bank pays on its deposits and earns on its loans – are at their lowest ever levels thanks to a slowing economy and pressure from the state to boost credit. * SO WHAT? * This isn’t great and perhaps explains why four out of the

six banks announced over the weekend that they would raise $72bn. This is being branded as an effort to shore up capital adequacy but it probably has more to do with giving the banks more financial fire power to get China out of its current rut.

Then in Klarna hit by buy now, pay later backlash as it targets $15bn IPO (Financial Times, Akila Quinio) we see that Klarna has hit a bit of a speed bump on the road to an anticipated IPO as its recent announcement to bring BNPL loans to food delivery app DoorDash caused a major wave of derision. * SO WHAT? * Klarna fans will see a New York IPO as its long-awaited “arrival” in the world of consumer finance while sceptics will see it as a peak from which it will fall thanks to potential exposure to consumer downturns, rising interest rates and the resultant higher funding costs. That being said, Klarna itself is keen to evolve from being “just” an BNPL player into being a fintech with a broader array of products. Clearly an IPO will help give its some financial firepower to achieve that aim…

It seems that Italians like eating tiramisu. If you don’t believe me, watch this 🤣!