Tuesday 18/02/25

European countries clash over sending troops to Ukraine (Financial Times, Leila Abboud, Ben Hall, Henry Foy, George Parker, Laura Pitel, Raphael Minder, Barney Jopson and Amy Kazmin) shows that, even in the face of a real threat in the form of Trump and Putin, Europe just can’t agree on a way forward. Ironically, this potentially justifies Trump’s approach to bypass Europeans and go straight to Putin in order to get something done. Despite PM Starmer offering to send British troops in for peacekeeping purposes, Germany, Italy, Poland and Spain expressed reluctance. The Paris meeting also saw discussion about European defence spending and Starmer vows to ‘spend more’ on UK defence but other areas face cuts (Financial Times, George Parker) shows that Starmer is talking a good game here by increasing defence spending from 2.3% of GDP currently to 2.5% but at the same time, he has been  instructing ministers to come up with budget cuts of up to 11% over the next few months. Rachel Reeves wants to delay this defence spending increase for as long as possible to ease pressure on public finances. Meanwhile, European defence shares surge as investors bet on higher spending (Financial Times, Oliver Ralph, Patricia Nilsson and Ian Smith) highlights strong performances from European defence companies including Rheinmetall, BAE Systems and Thales as the Stoxx Europe aerospace and defence index reached its highest point since the early 1990s! British defence stocks soar by £4bn ahead of Ukraine peace talks (Daily Telegraph, Michael Bow) also mentioned Rolls-Royce and Qinetiq as benefitting from the uptick in sector interest. Still, Revealed: Trump’s confidential plan to put Ukraine in a stranglehold (Daily Telegraph, Ambrose Evans-Pritchard) sounds an ominous tone as it ponders the contents of a contract dated February 7th 2025 stating that the US and Ukraine should launch a joint investment fund to ensure “hostile parties to the conflict do not benefit from the reconstruction of Ukraine”. This seems to be a move by the US to perform some kind of economic takeover of Ukraine as it demands 50% of recurring revenues received by Ukraine and 50% of the financial value of “all new licences issued to third parties” for future monetisation of resources along with a clause that some have referred to as taking a “pay us first, and then feed your children” approach. * SO WHAT? * President Zelensky was the one who last year suggested giving the US a direct stake in Ukraine’s rare earth elements and critical minerals, presumably in the hope that this would mean US companies setting up operations in Ukraine which would potentially act as a deterrent from Putin launching another attack. However, he probably wasn’t expecting Trump to confront him with terms that are normally imposed on states that have been defeated in war! If Zelensky accepts the draft in its current form, the Americans will take a higher share of Ukraine’s GDP than the reparations imposed on the Germans in the Treaty of Versailles that was signed after WW1. Trump argues that the US has spent $300bn on the war so far and that he wants to have something to show for it – or as he put it, “I want this money back”. However, even if the US gets its hands on Ukraine’s lithium and rare earth deposits, the benefit of having them is arguably limited. Lithium prices have tanked, the prospect of more supply is close and although Ukraine has cobalt, most EV batteries these days use alternative materials and it’s not needed as much any more. It is looking increasingly like Zelensky is going to have to make a choice between

military violation of Ukraine by Putin or the country’s economic violation by someone who he thought was an ally. In the meantime, European countries can’t decide what to do because they are facing elections and/or they don’t have the money to commit to defence without doing things that will push electorates towards populists who will cause further splits within Europe.

Memecoin scandal rocks Argentina’s Javier Milei (Financial Times, Ciara Nugent) shows that Argentina’s president has got himself in a bit of hot water as he promoted a cryptocurrency called $LIBRA on X on Friday night which had only just started trading a few minutes earlier. Initially, its value hit $4 before then falling to below 50 cents. Political opponents have since filed a load of lawsuits accusing Milei of ethics violations while his opposition has said it would launch impeachment proceedings. * SO WHAT? * This is the biggest scandal of his administration so far and although he’s obviously going to be distancing himself from it, it’s not clear yet how easily he’ll be able to brush this off. As things stand currently, it looks like the majority of the buyers of the coin were in America and Asia – and not in Argentina – so the damage may be limited. However, this could dent his credibility.

Elsewhere, Australia cuts interest rates for first time in 4 years (Financial Times, Nic Fildes) shows that the Reserve Bank of Australia cut interest rates today for the first time since November 2020 although its governor said that “We cannot declare victory on inflation yet”. It cut its cash rate by 0.25 percentage points to 4.10%. * SO WHAT? * This cut comes at an important time because elections are due to be held by mid-May although PM Anthony Albanese hasn’t yet decided on a date. The RBA has increased interest rates 13 times since May 2022, so this is significant! It had been widely expected, though, after official stats showed headline inflation in Australia falling in the December quarter.

Elsewhere, Support for ESG proposals at record low driven by US investors, report shows (The Guardian, Kalyeena Makortoff) highlights the ongoing loss of momentum for ESG investment as research from campaign group ShareAction found that out of 279 ESG shareholder resolutions put forward at AGM meetings in the UK, Europe and US, just 4 of them got majority support. It seems that ESG, like DEI, has been a phase that everyone just seems to be moving on from. With Trump in power across The Pond, I don’t expect ESG momentum to improve for at least the length of this administration…

Back home, Supreme court judges reject Reeves’ motor finance intervention (The Guardian, Kalyeena Makortoff) shows that judges at the Supreme Court have rejected the chancellor’s attempt to intervene in the car loan commissions scandal, meaning that the lenders could be on the hook for paying out £44bn in compensation to loan recipients. * SO WHAT? * This is obviously a blow to the chancellor and the lenders involved but there’s still a hearing to overturn the court of appeal judgment reached in October due to take place from 1st to 3rd April. The drama continues.

In Tesla braces for delay to China licence as Trump trade tensions mount (Financial Times, Zijing Wu and Stephen Morris) we see that Tesla is preparing itself for a potential delay in getting Chinese approval for its autonomous “full self-driving” (FSD) technology. * SO WHAT? * There had previously been indications that the approval would come in Q1 of 2025 so maybe there is at least an element of Tesla becoming a political football in the whole US-China trade war.

Meanwhile, Foxconn buckles up for the electric vehicle great race (Financial Times, Lex) takes a look at Foxconn’s recent expression of interest in buying a stake in the troubled Nissan.

Nissan could do with the help and it would be useful for Foxconn because it would be an opportunity to get more manufacturing expertise and market access. * SO WHAT? * Until now, Foxconn has been making progress in the field of automotives by signing an agreement with Stellantis to design car chips whilst also investing in its EV battery supply chain. The share price of Hon Hai – the name under which Foxconn trades in Taiwan – has boomed by 80% over the last year thanks to its strength in its AI, cloud and networking products business and although this foray into automotives sounds interesting, the industry is notoriously capital intensive and could become a real millstone around Foxconn’s neck if it doesn’t play out well.

In mining news, Anglo American to keep 19.9% stake in Amplats after demerger (The Times, Emily Gosden) shows that Anglo American will initially keep a big stake in the world’s biggest platinum producer after the planned demerger in June in order to avoid a mass sell-off. * SO WHAT? * This demerger is part of a big overhaul that was announced in May last year to rebuff a takeover attempt by BHP and to turn its fortunes around. The company is also hoping to sell or float its diamonds business, De Beers, in order to focus more on its copper and iron ore businesses.

BHP profits crash after big fall in iron ore prices (The Times, Robert Miller) highlights a massive 23% drop in H1 profits for the world’s biggest listed mining company thanks to falling prices for iron ore. Iron ore prices have been trending weaker because of slowing demand from China’s property sector – and this has been a major drag versus higher contributions from its copper business. On the positive side, the company sounded cautiously optimistic about demand for its iron ore and copper. I guess the elephant in the room here is the impact of tariffs on demand…

In a quick scoot around some of today’s other interesting stories, Saudi Arabia strikes $1bn deal with Leonard Blavatnik’s sports streaming business (Financial Times, Daniel Thomas and Josh Noble) shows that the sporting arm of Saudi Arabia’s Public Investment Fund, Surj Sports Investment, has announced that it will be investing $1bn in DAZN and a new joint venture as the country deepens its presence in the global sports market. * SO WHAT? * This is just another step in Saudia Arabia’s wider plan to boost its global profile. DAZN will become Surj’s streaming and broadcast partner and will show Saudi and Saudi-based events across over 200 markets.

China’s Love Affair With Luxury Has Cooled (Wall Street Journal, Yoko Kubota) takes a look at how the luxury market has weakened in China as a result of a sluggish economy and increasingly reluctant consumers. Consulting firm Bain reckons that the luxury market in China shrank by about 20% last year versus the previous year and companies like Kering (which owns Gucci) have been hit as a consequence. * SO WHAT? * It’s possible that the pandemic (after the wave of “revenge spending” we saw immediately post lockdown) recalibrated consumers’ tastes in China

and that we won’t see the growth that luxury goods companies once enjoyed any more. For the moment, it seems like there’s more potential in the US…

Then in Linklaters makes robots sit law exams to assess quality of advice (The Times, Jonathan Ames) we see that the Magic Circle law firm has seen a notable improvement in the standards of LLMs as it tested them side-by-side to see how they would do against humans. It tested GPT 2, GPT 3, GPT 4 and Bard back in 2023 and repeated the exercise where it gave the LLMs a tricky law exam. In 2023, Bard got 4.4 out of 10 and the most recent top scorer, Gemini 2.0, got 6 out of 10 – a marked improvement! * SO WHAT? * Humans are still relevant (hooray!) but assessors said that if expert supervision is available, AI systems are now becoming capable of creating first drafts or cross-checking documents. The robots are coming, but they’re not quite here yet! However, I did think that if only expert supervision is needed, what happens to the junior end – and what does that mean for the future of law firms?? Will it change their structure?

I thought I’d leave you today with a Parmesan “hack” that has never occurred to me!