Tuesday 13/10/26

Houthi assault on Saudi airports strikes at MBS’s economic vision (Financial Times, Ahmed Al Omran) highlights the dramatic escalation of the Houthis’ campaign that has now struck at the heart of Crown Prince Mohammed bin Salman’s Vision 2030 programme to make Saudi Arabia a regional hub for finance and events. The government has been planning a major expansion to the bombed King Khalid International Airport in preparation for global events including Expo 2030 and the Fifa World Cup in 2034. The airport is also the home of state-backed Riyadh Air. * SO WHAT? * The failure of Saudi air defences to protect airports could cause longer term damage to the kingdom’s image and reputation – and this will no doubt dent its ability to attract foreign investors and tourists which are all important elements of the bigger plan to broaden Saudi Arabia’s appeal beyond oil.

Top economies heading for biggest budget deficits since Covid, IMF warns (Financial Times, Sam Fleming, Leo Lewis and Claire Jones) cites the IMF’s latest World Economic Outlook report which says that the world’s leading economies should take “urgent action” to rebuild their public finances as the bank’s forecasts show that leading economies are on track to hit their biggest budget deficits since Covid. It predicted that government net borrowing by advanced economies would hit 5.2% of GDP this year while deficits in both China and the US will reach 8% or more of GDP.

Over in the US, Elon Musk injects $275mn into Republicans’ fight to retain Congress (Financial Times, Joe Miller, Alex Rogers and Michael Taffe) shows that Musk became the biggest donor to the Republicans’ bid to keep control of Congress in the midterms, spreading his money across key races around the US over the last few months. He spent over $300m in getting Trump re-elected in 2024. This adds to the already insane amount of $1.1bn that the Republicans have already raised versus the Democrats’ rather more “pedestrian” $600m as at the end of August. * SO WHAT? * Right now, the Democrats are expected to get a majority in the House of Representatives in the midterms while the result will be closer in the Senate. It certainly seems like Musk is making his way back into Trump’s good books after last year’s bromance break-up.

Oil prices rise as Trump’s ‘energy ceasefire’ frays (Financial Times, Verity Ratcliffe and William Sandlund) shows that oil prices rose yesterday as the “energy ceasefire” touted by Trump proved to be complete 🐂💩 as Russia struck Ukrainian power and gas facilities within minutes of his announcement. For all this bluster, US diesel prices are currently 75% above their prewar level while European diesel prices are around 95% higher. Trump’s Russian diesel gambit is cynical and won’t work (Financial Times, the editorial board) says that the administration’s latest move weakens Ukraine’s position, particularly if an energy ceasefire does actually emerge because the ceasefire applies to oil refineries, which Russia has more of. Ukraine’s position will be further weakened if the US follows through on its threats to cut off intelligence sharing and its access to US-made weapons. Trump is also being a massive hypocrite given that he criticised India and China for buying Russian oil – and now he’s doing it himself! As I said yesterday, the “deal” that he reached just isn’t going to help US consumers at all because the quantity isn’t enough – so he’s kind of doing this all for nothing whilst kicking Ukraine in the teeth while he’s at it. All the more reason for Europe and the UK to wean themselves off reliance on Washington as Trump’s word clearly means nothing.

IMF upgrades UK growth forecast in boost to chancellor (The Times, Mehreen Khan) quotes the latest World Economic Outlook report (I mentioned it earlier) which shows that the UK economy

grew faster than expected this year making it the best performer in the G7 for the first half of the year. It upgraded its full-year forecasts for the UK economy to a level that will make its GDP growth rate the joint second-fastest in the group of advanced economies behind the US. As I always say, take these predictions with a massive pinch of salt – economists rarely get these things right! TBF, it is difficult – but then again that’s why the get paid the big bucks 😁.

Britain, Brexit and the cat-flap option (Financial Times, Gideon Rachman) is an interesting article which debates the options for Burnham’s growing penchant for snuggling up to Europe. Leaders of France and Spain have been vocal about their support for the UK potentially returning to the European fold while recent opinion polls shows that 59% of people want to rejoin the EU with 32% opposed. Trump’s actions regarding Iran and Ukraine have shaken NATO to the core and it is increasingly likely, as a result, that the UK’s future is better served by becoming closer with Europe. The process of rejoining would be tricky, however, and it’s not clear what sort of deal we might get. From a wider perspective, rejoining Europe in the current climate might be more appealing if the current direction of travel of EU members is veering in the more populist and less-Eurocentric direction. A lot has changed since 2016 and it seems that attitudes on both sides of the divide may have softened because of the greater need to stand together in a more uncertain world.

In Heat pump subsidies to be scaled back to fund defence (Daily Telegraph, Matt Oliver) we see that the ongoing debate about what’s in and what’s out in the government’s finances is now encompassing the heat pump subsidy scheme that was championed by Ed Miliband. The £15bn Warm Homes Plan looks like it’s going to be reined in as the Department for Energy and Net Zero (DESNZ) is looking to save £2bn as part of a broader attempt to find money to fund defence. I suspect that there’s going to be loads of this kind of stuff going on in the run-up to the Budget…

In markets news, Wall Street’s record-breaking trading streak set to cool (Financial Times, Joshua Franklin) suggests that analysts reckon that Wall Street banks are going to have their weakest trading results of the year so far in their Q3 results. Although the absolute levels will still be high they won’t be as high as they were in Q2 – and that has prompted speculation that the good times are over. * SO WHAT? * FWIW, I still think that there’s plenty of scope for more volatility while Trump is at the helm, particularly as this Iran war can’t go on forever. The other thing is that the direction of interest rates is in the upward trajectory – and that’s always good for banks because it gives them more scope to get a fatter margin. On the other hand, advisory fees may not be as stellar as they have been because of the slowdown in M&A momentum. We’ll know soon enough though when the American banks report…

Chip stocks slide as fears mount over scale of AI investment (Financial Times, Song Jung-a and William Sandlund) shows that remarks by the CEO of Broadcom regarding the huge sums of money being thrown at AI freaked out investors to the extent that chip stocks including Samsung Electronics and SK Hynix were among the big names to get sold off. He said that investors “set very extreme expectations only to find out that it’s almost like they are in a casino”. Some observers are interpreting this as a change in mindset regarding AI. Investors were also worried about a report that Chinese DRam producer CXMT is catching up with the Koreans’ technology. * SO WHAT? * This is particularly serious for the South Korean market, the KOSPI, because Samsung and SK Hynix make up about half of the value of the entire index! Despite the recent sell-off, the KOSPI is still 39% higher than it was at the beginning of this year.

LVMH hopes of recovery in China dashed by falling fashion sales (The Times, Guy Taylor) shows that LVMH’s core fashion and leather goods division saw a sharper than expected fall in quarterly sales although group sales were slightly up. * SO WHAT? * The quarterly update will be seen as an indicator of the direction of corporate earnings for the luxury sector. The China market remains stubbornly lacklustre but the company tried to put a positive spin on things, saying that the performance this year was “solid” given the “uncertain geopolitical and economic environment” and that there were decent performances in the US, Europe and Japan.

Private equity puts string of UK high street names up for sale (Financial Times, Jason Ma and Ivan Levingston) highlights the offloading of names like Pizza Express, Morrisons and Itsu along with Third Space and Waterstones by various private equity groups – and the feeling is that this might continue as PE firms look to shed ageing assets in a reasonably stable market. A lot of the assets being sold now were bought in or around Covid. * SO WHAT? * You do wonder who’s going to buy in markets like this where pessimism is rife and consumer confidence is thin on the ground.

Elsewhere, Mike Ashley tightens grip on Burberry (Daily Telegraph, Tom Haynes) shows that Frasers Group has been nibbling on more Burberry and has now built up a stake of 7.4% of the

company, up from 6.3% just two weeks ago. Frasers could become Burberry’s biggest shareholder. This follows on from its relentless pursuit of Hugo Boss, his purchase of Harvey Nichols – and we heard last week that he had an 8.8% interest in Under Armour. He really does have some interesting assets – but is he going to do anything with them??

Watch out luxury: mid-market fashion brands are staging a comeback (Financial Times, Lex) points out that while the likes of LVMH are suffering, mid-market brands like Zara, Uniqlo and even Gap are prospering.  Mid-market fashion is generally described as apparel worth between $50 and $300. The article argues that mid-market brands have been more successful than high end apparel retailers because they are better able to roll with the punches that are dealt out by the economy in terms of price flexibility whereas luxury brands can’t discount for fear of diluting their cachet.

Then in Unions fear Poundland will go into administration ‘within days’ (Daily Telegraph, Joe Sledge and Ben Marlow) we see that Poundland is close to the brink according to retail worker union Usdaw. Poundland was put up for sale by current owners Gordon Brothers, but it’s still very possible for it to fall into administration. A decision on its future could be made as soon as today…

In a quick scoot around some of today’s other interesting stories, China faces uphill battle to wean tech firms off Nvidia chips (Financial Times, Zijing Wu and Eleanor Olcott) suggests that, for all the effort that the Chinese government has put into becoming more technologically independent, it turns out that Chinese companies still bought over 1m Nvidia gaming and workstation chips this year. The sale of Nvidia’s chips have been restricted to China in some form or other for four years and Beijing told domestic companies two years ago to cut their reliance on them. * SO WHAT? * The problem is that demand is growing even faster than Chinese tech groups can produce – and that means there’s a shortage, which is where Nvidia’s chips come in. Its gaming and workstation processors are being repurposed to help with some AI workloads where the most cutting edge chips aren’t required. It is likely that this shortfall in the number of chips will continue for a few years yet although Chinese chipmakers are making ground.

Mark Zuckerberg says Meta has reached AI ‘frontier’ (Financial Times, Hannah Murphy) is an interview with Zuck himself who says that Meta has caught up with rivals at the “frontier” of AI and will continue to throw vast sums of money at the technology to take on the likes of Anthropic and OpenAI. The company launched its Muse Wonder AI model yesterday. Zuck says that Wonder has a better performance than its rivals according to various technical benchmarks. Catching up with these rivals has been a Herculean task but apparently he’s got there. He continues to shrug off concerns about the safety of the technology.

Then in Stellantis and Renault back UK to get EU car industry protection (The Guardian, Jasper Jolly) we see that the two car companies have thrown their weight behind efforts by the UK car industry to be included in the forthcoming “Made in Europe” legislation. However, they also want the UK to limit imports of Chinese cars.

I thought we could do with a bit of music today! How about this for a Freddie Mercury sound-a-like?? Amazing, no??