Monday 09/12/24

Soooo Assad’s regime has fallen! A welcome end to a brutal Middle East dynasty (Financial Times, the editorial board) is an interesting reflection on what happened over the weekend as the curtain has now closed on a dynasty that terrorised its own people for over five decades. If you want to know more about how we got to the current state of affairs, then I would definitely recommend that you read A short guide to Syria’s long war (Financial Times, Michael Peel) in full if you have access to it as it traces developments that were prompted by the “Arab Spring” uprisings that started in late 2010. * SO WHAT? * Syria was Russia and Iran’s the most important regional ally, so this will be a blow to the latter two as it highlights a weakening of their influence. It also adds further uncertainty in a Middle East that is already in turmoil. The leader of the HTS (Hayat Tahrir al-Sham) rebels who overcame government forces is now trying to portray the group as a reformed jihadi organisation (it was once part of Isis and al-Qaeda). HTS has said that it intends to protect state institutions in an orderly transition of power. From here, it looks like there are two options: firstly, more civil war that will propel it towards a similar fate to Yemen and Libya; secondly, there could be stabilisation and a homecoming for millions of refugees around the world. There is a real chance for the country to heal here – but it’s far from certain as to which way it will go! Syria is important in the region because it is so central (it has borders with Turkey, Iraq, Iran, Jordan, Lebanon and Israel) and so what happens there could set the tone. The conflict has, according to UN figures, displaced over 14m people and the exodus has caused all sorts of political tensions in Europe since the mid-2010s (which has no doubt helped the rise of the populists across Europe). We’ll just have to see what happens now…

In Asia, China’s consumer inflation falls below forecasts (Financial Times, William Sandlund) shows that the latest Consumer Price Index for November undershot market consensus as it contracted month-on-month while its Producer Price Index (this measures the prices of goods sold by Chinese manufacturers) also fell, but not by as much as the market had been expecting. If this really is filtering through to the real economy, then it might help to boost growth. Meanwhile, South Korean president faces treason probe after failed martial law gambit (Financial Times, Christian Davies) highlights the latest developments following last week’s martial-law-that-was-quickly-withdrawn debacle as South Korean prosecutors have now opened an investigation into

president Yoon Suk Yeol. This followed a statement by the Prime Minister yesterday that the president would step back from day-to-day affairs for the moment although he did manage to survive an impeachment attempt on Saturday night. This is not great considering ongoing tensions in the region and its North Korean neighbours getting increasingly antsy. The situation needs to get sorted quickly.

Elsewhere, Donald Trump: I won’t attempt to oust Fed chief (The Times, Mehreen Khan) shows that Donny T has promised not to kick Fed chief Jay Powell out of office before his term is up in 2026. * SO WHAT? * I know this is very cynical of me but I think that keeping Powell on could be quite useful for Trump because he could be a fall guy for if anything goes wrong. Trump’s policies are thought to be inflationary and could potentially prompt a more robust monetary response from the Fed to keep inflation in check – so the president-elect could just blame any negativity on him to justify kicking him out or putting so much pressure on him that he resigns.

Back home, Economy ‘likely to shrink’ as budget gloom spreads (The Times, Jack Barnett) cites the latest research from consultancy BDO which shows that business confidence has fallen by its steepest month-on-month rate since August 2021 thanks to the impact of Rachel Reeves’s budget. A separate report by the Recruitment and Employment Confederation also showed a sharp reduction in job vacancies and a rise in redundancies since the Budget. Will we see a pick-up in 2025, or will we slide into a gloomy abyss?? * SO WHAT? * FWIW, I think that the Budget changes were always going to be badly taken (which is perhaps why Starmer and Reeves were so keen to manage expectations ahead of it) and it will take at least a few months for the dust to settle. Maybe a pick-up in the global economy, the prospect of interest rate cuts from the Bank of England and renewed relations with Europe will help to drag us out of a rut.

TikTok fails to halt law that could lead to US ban (Financial Times, Hannah Murphy, Stefania Palma and Demetri Sevastopulo) is a headline from a few days ago which highlighted the failure of parent company ByteDance’s appeal at the US Court of Appeals over a law signed by President Biden this year for TikTok to be banned in the US if it doesn’t divest from its parent by January 19th 2025. Can Donald Trump save TikTok? (Financial Times, Hannah Murphy, Tabby Kinder and Stefania Palma) suggests that TikTok will continue to try to exhaust all legal avenues (which will involve taking its case to the Supreme Court), but failing that Trump could ask Congress (which he controls) to repeal the law or push his attorney-general not to enforce it. He could even just declare the app as no longer being under Chinese control, which would also allow the app to continue. Separately, TikTok-owner ByteDance takes lead in race to capitalise on AI in China (Financial Times, Eleanor Olcott) shows that ByteDance is gaining momentum in the field of AI as it has successfully managed to poach top engineers and researchers away from Alibaba and other AI start-ups over the last few months. It has been creating and growing teams to work on its large language models and AI products whilst ploughing billions of dollars into AI infrastructure. * SO WHAT? * If anyone can finance a proper foray into AI, it’s ByteDance. If it can come up with the right product it also has the most amazing platform for distributing it as well! It also has an advantage over rivals because of its very close relationship with Nvidia. As for the potential ban in the US, my money would be on it NOT being banned (on balance – or at least facing a short one) although its fate is clearly going to depend on Trump and the US Supreme Court…

Meanwhile, Advertising revenues set to hit $1tn in market dominated by technology companies (Financial Times, Daniel Thomas) cites research by GroupM (a media agency itself owned by advertising giant WPP) which highlights an impressive milestone for the global advertising industry as it looks set to breach the $1tn mark in revenue for the first time this year with Google, Meta ByteDance, Amazon and Alibaba expected to account for over half of that. It also reckons that the pie will grow further by 7.7% in 2025, most of which will be gobbled up by the biggest sellers of digital advertising in the US tech sector. While they forecast that digital advertising would account for 73% of total revenues by the end of 2025, traditional channels like TV, print and radio are all likely to suffer. Fears for British jobs in £23bn advertising megamerger (Daily Telegraph, Matthew Field) highlights the possibility of a megamerger in the advertising industry as Omnicom and Interpublic (the second and fourth biggest advertising businesses in the world by revenues) are looking at joining forces. If it went ahead, it would leapfrog them into the #1 spot over WPP, which has been in pole position since 2008. It is also likely that there would be a lot of job losses in the UK as there is a lot of overlap. * SO WHAT? * Firstly, I’d say that the revenues thing shows that the global economy is gathering momentum (you are no doubt sick of me by now banging on about advertising being a lead economic indicator!) and the consolidation thing is a sign of things to come as the industry has to adapt to the threat of AI.

New UK planning rules will bypass councils to fast-track housebuilding (Financial Times, Anna Gross) highlights plans that are going to be set out today about new rules that will enable locally-appointed planning officers to approve projects in order to bypass local council committees that often slow things down. * SO WHAT? * Deputy PM Angela Rayner has described the speeding up of decision-making as “a vital part of our Plan for Change”. It’s obviously needed in order to meet house-building targets. Remember, the government is aiming to build 300,000 new homes per year – something that has not been achieved since 1969!

Then in Average UK house price hits record £300,000 as demand remains undented (The Guardian, Hilary Osborne) we see that, according to Halifax’s most recent report, the average

cost of a home is now £300,000 after house prices increased by 1.3% in November. After the turbulence of the last five years (the pandemic, cost-of-living crisis, the Truss debacle) prices are now up a chunky 25%! * SO WHAT? * As I’ve said before, I would expect housing market activity to get more frenzied going into the stamp duty threshold rising at the end of April 2025 despite affordability continuing to stretch the bounds of reality. Instead of house prices falling because people aren’t able to cover the mortgage payments, behaviour is changing. Mortgage terms are getting stretched over longer periods to reduce monthly payments (they have traditionally been 25 years, the average is now above 28 years and first-time buyers are looking at an average of 31 years!) whilst buyers are also willing to allocate more of their income to mortgage payments (a rising number of people are now spending over 30% of their earnings on their mortgage!).

In a quick scoot around some of today’s other interesting stories, Trump’s promise to tax imported goods could spell trouble for US auto industry (The Guardian, Tom Perkins) reminds us that US automakers could also suffer if Trump slaps taxes on imports because some cars, like the popular F-150 pickup truck, use a lot of imported parts (only 32% of this vehicle’s components are made in the US or Canada, for instance) while, closer to home, Mastercard settlement puts UK class action lawsuits on trial (Financial Times, Alistair Gray) suggests that the ground-breaking decision in the case that has been dubbed the UK’s biggest class action lawsuit could open the floodgates of litigation and the proliferation of litigation funders. Although the amount of money that was finally settled upon (£200m) was way less than what they had been going for (£14bn), the mechanics of how to “do” class action lawsuits now exist.

Following on from what I said recently about military drones, Rheinmetall joins forces with US software specialist on combat drone development (Financial Times, Sylvia Pfeifer and Patricia Nilsson) shows that the German defence group is working with US software specialist Auterion in order to develop common operating standards that will control autonomous battlefield drones.

Auterion’s software, which helps autonomous systems talk to each other, is already being used by drones in Ukraine. * SO WHAT? * This sounds like a great idea and will help NATO, for instance, to be able to fight more effectively because if each country’s drones have their own communications standard they will be very difficult to integrate. You do wonder whether this would act as a further catalyst for defence spending down the road as more new equipment that is compliant with the new standard will have to be purchased!

Private credit’s wave of consolidation points to a toppy market (Financial Times, Lex) considers last week’s $12bn deal where BlackRock offered to buy HPS – which followed on from Clearlake’s acquisition of MV Credit in September, Blue Owl’s $450m acquisition of Atalaya in July and Brookfield’s acquisition of a $1.5bn chunk of Castlelake earlier this year. It suggests that although private credit is clearly an attractive area, valuations now make be looking pretty full, particularly as competition is likely to be rising from here as others are keen to get a piece of the action.

I thought that this was a brilliant (and very relatable!) insight into the differences between American and British drinking culture. The crisp thing is sooooo spot on as well 🤣! I don’t think that I’ve included this clip before so apologies if I have!