Monday 19/10/26

St Petersburg endures biggest Ukrainian drone attack (Financial Times, Max Seddon and Fabrice Deprez) highlights Ukraine’s biggest ever drone attack on St Petersburg yesterday as it resumed attacks against Russian refineries. Trump’s so-called “energy ceasefire” didn’t stop the Russians attacking Ukraine so Ukraine cranked things up again. Parts of Russia’s second biggest city had a power blackout for several hours following the hit on an electricity substation. I wonder what Trump’s next move is going to be…he certainly seems to be favouring Russia at the moment…

US army chief in Indo-Pacific calls for display of enhanced military muscle (Financial Times, Demetri Sevastopulo) shows that the commander of the US Army forces in Asia is calling for more muscle in the Indo-Pacific region to bolster deterrence and minimise the chances of war. * SO WHAT? * The US Army Pacific has been increasing its role by temporarily deploying weapons in the Philippines, Japan and other countries in the region – but clearly the general believes that more is needed. It is worth noting that for all Trump’s bluster, all the grown-ups (e.g. diplomats, defence officials) have said that military co-operation has continued to grow.

It’s been a tough old time in France recently. Emmanuel Macron faces political firestorm after riots (Financial Times, Sarah White and Leila Abboud) shows that the disasters keep on coming for the French president after nationwide demonstrations over the weekend united students raging at education and citizens raging at the cost of living. The government is already trying to get a budget passed, facing an increasingly sceptical market and dealing with protests at high schools. Amid the peaceful protests came the arson and looting of stores, city halls and other buildings. Macron’s approval ratings are at a historic low and France braces for debt sell-off after violent protests (Daily Telegraph, Melissa Lawford) suggests that government debt is going to be sold off as a result of the domestic instability and the resulting higher borrowing costs are going to turn the screws even more on France’s tricky public finances. The government is trying to make painful cuts to repair public finances because it’s got a budget deficit of over 5%

and government debt worth almost 120% of GDP – but clearly this isn’t being taken well and it’s making Le Pen’s job of getting the presidency a lot easier…the French people want more spending, not less…

Meanwhile, China’s economy expands 4.5% in third quarter (Financial Times, Joe Leahy and Haohsiang Ko) cites the latest official figures which show that Q3 was a decent quarter whose growth exceeded market expectations. Rising exports that played into the AI boom mitigated weak retail spending and investment.

Back home, What is behind the surprising resilience of the UK economy? (Financial Times, Delphine Strauss, Valentina Romei and Sam Fleming) takes a look under the hood of the surprisingly robust UK economy, which has performed pretty well considering that we’ve had one of the slowest pandemic recoveries, one of the worst inflation shocks and a long period of lacklustre productivity growth. Last week, the annual GDP growth rate hit 1.8% for the quarter, which is the fastest growth rate since 2022 when the economy was rebounding after Covid lockdowns. This has been thanks to the global rollout of AI where we benefitted from strong performances in computer programming and professional services, In fact, professional services was the biggest contributor to the increase in GDP as law, accountancy and advertising put in strong performances. I guess it feels strange to talk about overall growth when it feels like everyday expenses seem to be rising!

Then in Treasury introduces new security measures in bid to stop UK Budget leaks (Financial Times, Chris Smyth and Lucy Fisher) we see that Chancellor John Healey is introducing “military-style” security protocols to stop leaks before the Budget is announced. This involves officials only being privy to policies that they are directly involved in and their access and sharing of information being electronically monitored. This all sounds pretty sensible given all the leaks that beset Rachel Reeves’ final Budget last year!

Global economy set for AI-driven surge, FT survey suggests (Financial Times, Valentina Romei and Sam Fleming) cites the results of an FT poll of 94 economists across Asia, the US and Europe. 54% of respondents said that mainly or almost all G20 countries would benefit significantly over the next decade because of AI – not just China and the US. One economists observed that “countries do not need to develop frontier AI themselves to benefit” because workers and business that adopt AI will be able to manifest productivity gains while goods and services get cheaper. The survey’s findings echo research published by the World Bank in June which concluded that AI-related gains could overtake those driven by electrification. That being said, America’s $10tn AI infrastructure boom is starting to fray (Financial Times, George Hammond, Ryan McMorrow, Kieran Smith and Eva Xiao) cites research from RegLayer, a regulatory intelligence company, which points out that at least 47 big data centre projects have been delayed, pulled or blocked so far this year – and it said that was a conservative estimate. Analysts at Bernstein said earlier this month that only around 35% of the planned US data centre projects in the pipeline are actually credible. Over 1,000 communities around the US have either restricted or are in the process of restricting AI infrastructure this year, according to FT research. * SO WHAT? * This rising reticence hasn’t been helped by rising borrowing costs and inflation trends – and that has been reflected in big players in this area, like SB Energy and Firmus, deciding to postpone their IPOs. And it’s not just happening in the US – Microsoft pulls plug on Nscale data centre deal (Financial Times, Keiran Smith and Ellesheva Kissin) shows that momentum over here is being affected as Microsoft announced yesterday that it was pulling out of a deal with Nscale because its Essex data centre probably wouldn’t have a power supply until after 2030. The Loughton site was supposed to be connected to the grid this year. Nscale is targeting a $35bn valuation this year – and this latest news is bound to put a dent in that particular valuation unless an alternative can be found. The original plan was that Microsoft would lease the whole 50MW capacity at the site. Microsoft and Anthropic are Nscale’s two biggest customers. Maybe I’m being too harsh here but it looks to me like Nscale is starting to slide down a slippery slope because Microsoft is already having wobbles with another Nscale project in the US and could potentially have problems with Anthropic as well.

In other business trends, ‘Inflation will make people poor’: Airlines brace for years of pain (Financial Times, Peter Campbell) cites airline industry bosses who see higher-for-longer jet fuel prices making higher airfares inevitable as they pass the cost onto customers. All this is likely to curtail growth plans for the next few years although current data shows that passengers are flying more not less – something that is echoed in Brace Yourself for the Priciest Holiday Travel Season in Years (Wall Street Journal, Rebecca Cadenhead and Alison Sider) which highlights the fact that although airfares this holiday season in the US will be the highest they’ve been in at least ten years – according to Hopper, the travel booking company – demand is still strong. Maybe this is because travellers are starting to book sooner rather than later to lock in lower fares. It could also be due to the fact that the top 40% of US households are wealthier than they were a few years ago and are able to pay higher fares.

In the automotive industry, Fuel-price surge turbocharges global EV sales and spells end for diesel in Europe (Financial Times, Kana Inagaki and Sarah White) cites the latest data from the European Automobile Manufacturers Association which shows that EV sales in the EU increased by 63% in August, equating to a 28% market share of new car sales! Conversely, sales of new diesel cars in the EU cratered by almost 25% in the same month with a market share of 6%. Sales of EVs are also rising in south-east Asia and Latin America. Why the humble hatchback could save Europe’s car titans (Daily Telegraph, Matt Oliver) suggests that cheap-and-cheerful EVs could be the saviour of European carmakers in the face of massive competition from the Chinese.

Manufacturers have tended to concentrate on bigger, more expensive models that can absorb the extra costs of batteries, tech and complying with new regulations but it seems that cheap-and-cheerful is where it’s at! Competition from China, though, is still fierce. Since 2020, Chinese brands have gone from selling under 1% of entry-level cars in Western Europe to selling over 5%, according to data company Mobility Global. * SO WHAT? * Given the quality and appeal of the Chinese manufacturers’ offerings, I think that European manufacturers have to lean into their long experience, brand awareness and big dealer networks. However, they are always going to be up against Chinese manufacturers’ lack of “baggage”, their more streamlined production processes and superior supply chains. The fact that they can turn around a new model in two years is particularly impressive when you consider that it generally takes Western and Japanese brands at least five!

Why Britain’s shopping centres are back in fashion (The Times, Tom Howard) takes a look at how shopping centres are making a comeback as the format has had huge highs and lowly lows reflected by the valuation of Bluewater which vacillated between a £2.2bn high in 2014 and a £686m low just a couple of years ago. OK, so it’s now worth less than half its value in 2014, but there has been a recovery. * SO WHAT? * The category was hit by the rise in online shopping and the decimation of traditional stores like BHS, Debenhams and Topshop, which had been major tenants. Retail landlords including Intu and Hammerson had a tough time in the last few years as Intu went bust in the summer of 2020 while rival Hammerson had a close shave. It seems that sentiment has been making progress over the last 12 months, particularly as some tenants – including Next, M&S and Zara – are doubling down on their physical stores and increasing their footprint. Not all shopping centres are thriving, though – but at least there are signs of life in some destinations!

In investment trends, Private equity looks to South Korea as next Asian frontier (Financial Times, Song Jung-a) shows that global private equity groups are now making up most of the large buyout deals in South Korea, a major move that’s been happening over the last few years. Japan has enjoyed a lot of investment and it looks like investors are now looking for the next Japan – and that’s South Korea! * SO WHAT? * Dealogic data shows that foreign firms have been involved in over 80% of private equity takeovers worth about $370m so far this year. The previous year, they accounted for around 60% – which itself is a huge leap from the 10% it was at just four years ago! Advisers have pointed out similarities to Japan including corporate carve-outs, reforms in governance and rising numbers of geriatric founders. Japan is still a popular investment destination, accounting for over 25% of private equity investment in Asia last year, while South Korea accounted for 11%. Investors want to stay in the region but avoid China given geopolitical tensions. There’s a lot of room for upside!

Back home, Third of investors ready to stop UK spending after budget (The Times, Aubrey Allegretti) cites the results of a survey of financiers by YouGov which shows that tax increases on businesses in John Healey’s budget would result in a third of big investors and companies to suspend or slash spending in the UK. 78% of respondents said that ministers were not giving them enough reasons to pledge investment. Speculation continues to swirl around what Healey is going to do in the forthcoming Budget.

US threatens Europe over Starlink restrictions (Financial Times, Barbara Moens and Henry Foy) shows that the US ambassador to the EU has warned that European companies would suffer “devastating” retaliation from the US if Brussels went ahead with plans to restrict American rivals including SpaceX from parts of the European market. The European Commission said this year that it is thinking about allocating part of its spectrum that gives smartphones access to satellites for European players, which would limit the spectrum available for Chinese and US companies including SpaceX, which operates the Starlink satellite network. SpaceX has already warned that this move risks poorer-quality connectivity in Ukraine where its service has played a key role in civilian and military communications since Russia invaded. * SO WHAT? * I think that this proves exactly why the EC is making this move – to protect against bullying and threats from America. Somewhat hilariously, the diplomat said, with a straight face, that “You don’t make European companies more competitive by making US companies less competitive”. So…what has Trump been doing to the rest of the world since he came to power most recently?? It’s obviously the diplomant’s job to say things like this but the fact of the matter is that America’s tech behemoths in particular are snapping up promising European tech companies left, right and centre with apparent abandon – so it’s hardly surprising that Europe is trying to stem the tide and nurture local companies. After all, if Starlink slows down communication speeds on purpose while there’s a war going on, what’s to say that it won’t just switch the whole thing off?

Then in Larry Ellison’s TikTok bans ad account for Musk documentary (Daily Telegraph, Melissa Lawford) we see another example of attempts to control the narrative as TikTok has now banned the social media advertising account for “Musk”, an unflattering documentary covering the world’s richest man. The account was suspended permanently and came as the film was released across 470 cinemas across North America. Subsequently, the account was restored as it had apparently been suspended permanently “in error”. The maker of the documentary commented that many people were too scared to contribute to it because of potential consequences. Separately, the No Kings organisation, which organises mass anti-Trump demos in the US, said that its Instagram account was temporarily suspended over the weekend. Meta also said that this happened “in error”.

Elsewhere in socials, Why we just can’t quit the site formerly known as Twitter (Financial Times, Lex) takes a look back at four years of Musk ownership of Twitter, that has become X. Since he’s owned it, posts can be longer, Trump has returned, Grok has been integrated into the platform and then the whole thing got folded into SpaceX. Revenue has slowed down

significantly as moderation went out of the window, prompting an exodus of advertisers, while association with Musk turned increasingly toxic with all his political shenanigans. Monthly user numbers have fallen, but those who are on there stay there longer – over three minutes per visit versus two a year ago. Numbers from consumer data provider HundredX show that over a third of X users are considering, or might consider, switching to platforms like Bluesky. At the end of the day, I guess that it doesn’t have to be hugely successful given its backers – and, as Trump has found out with Truth Social, it’s extremely useful to have your own personal social media megaphone!

Anthropic turns to lawyers to help AI agents strike deals (Financial Times, Cristina Criddle) is an interesting story which shows that the AI giant is talking to legal groups about how AI agents should negotiate to get the most advantageous deals for the human “bosses”. * SO WHAT? * I guess that it’s trying to pre-empt issues surrounding autonomous agents “negotiating” with each other to complete tasks. This could include negotiations over the price of a product, customer service disputes and salaries! Anthropic is asking law firms’ advice to understand how they interact with negotiations and get fair outcomes. This certainly sounds interesting – but it also sounds like an absolute minefield as I would imagine that humans are also going to want to protect themselves from yet more AI encroachment…

Anthropic commits 5% of shares to ‘public benefit’ fund (Financial Times, Rafe Rosner-Uddin) shows that the company is going to commit 5% of its shares to a “public benefit fund” as a way of taking the edge off rising public backlash against AI as it heads towards a potential listing. It also talked about plans to add an extra 2% of the stock for every 50% increase in the company’s market cap above an as-yet-undisclosed baseline. It turns out that people don’t like it when a company says that AI poses an “existential risk to humanity”. Anthropic then said that it would donate about 20% of its stock to public causes while the company’s founders have promised to donate 80% of their own equity holdings. Will all this work, though??

In news on tech hardware, Apple blames ‘extraordinary’ demand as foldable iPhones sell out (Financial Times, Michael Acton) shows that Apple has experienced massive demand for its foldable phone as it sold out just hours after going on sale. It will still accept online orders and although it had originally promised delivery for October 23rd, some dates have now been pushed back to January. Wow! In the meantime, iPhone 18 pro models saw a “stronger launch than their predecessors”, especially in China and India.

In a quick scoot around some of today’s other interesting stories, Accenture looks to sell Chinese operations for up to $1.5bn (Financial Times, Arjun Neil Alim, Oliver Barnes and Stephen Foley) shows that the IT consultancy is looking at selling its fastest-growing business as it has brought in JP Morgan to do a strategic review. The company may opt to keep a minority stake to benefit in any upside.

Then in First-time buyers paying more on mortgage than they did on rent (The Times, Tom Howard) we see that increasing numbers of first-time buyers are spending more now on their mortgage payments than they did on rent, according to new research by Hamptons. This is a real

turnaround considering that ten years ago, monthly mortgage repayments for first-time buyers were about 13% less than what they’d been paying in rent but now the rise in mortgage rates has meant that their monthly payments had actually gone up rather than down. The research showed that 56% of renters who bought in September were now paying more in mortgage payments than the rent they’d been paying. Clearly there are long-term benefits of ownership but these figures should provide food for thought for would-be buyers.

Have you ever wondered what Disney’s Aladdin would sound like if Michael Jackson played the role?? Me neither – but just in case, here’s the “what if” 😁