Tuesday 25/02/25

In US drives Ukraine war measure through UN with Russian backing (Financial Times, Felicia Schwartz) we see that the UN Security Council passed a US resolution appealing for a “swift end” to the war in Ukraine thanks to the backing of Moscow and Beijing, driving the wedge deeper into the traditional transatlantic alliance. Trump added that he was open to making an “economic” deal with Putin and that the two had conducted “very good talks” about ending the war in Ukraine. * SO WHAT? * This marks a major change for the UN on its stance on the war where it has supported Ukraine’s sovereignty and territorial integrity, acknowledged Russia’s aggression and called for Russian forces to immediately withdraw. The final resolution made yesterday did not include this language – something that France, the UK, Denmark, Greece and Slovenia pushed for but the Americans just wanted to force the whole thing through. Although the Americans are effectively endorsing Putin and the notion that the invasion of countries will be rewarded (Greenland take note!), you could say that at least Trump has got things moving. Trump changed conversation on Ukraine ‘for the better’, says UK (Financial Times, George Parker) shows PM Starmer praising Trump for changing the “global conversation” (but then he probably has a lot of sucking up to do after his disastrous start with The Orange One, particularly as he’s got meetings at the White House this week) while EU and UK in talks about Europe-wide defence funding amid fear of US pullback (Financial Times, Paola Tamma, Henry Foy, George Parker and Sam Fleming) highlights ground-breaking talks set to happen this week that will bring EU leaders together to discuss defence funding arrangements across Europe. Chancellor Reeves will join other finance ministers at the G20 meeting in Cape Town and there’s already talk of a special fund, or even a “Rearmament Bank”. Apparently, such talks have been going on for the last few months (presumably they started when Trump won the election!).

Meanwhile, Germany’s election leaves its industrial champions dangling (Financial Times, Lex) moves on from Germany’s election over the weekend. Although its incoming chancellor said that he wants “independence” from the US, the reality is that this is going to be extremely hard, if not impossible because most of Germany’s big companies make most of their money from international trade. Now that some of the political uncertainty is out of the way, the next big thing is going to be what happens next re trade and tariffs. * SO WHAT? * On the plus side, the desire to increase defence spending and prompt business investment should be good for Germany’s Dax as its 40 constituents are more weighted to “old school” cyclical sectors like industrials versus the US or most of Europe. Trump’s initial reaction to the election result was that it was a “great day for Germany”, but just how great is really going to depend on tariffs and how the trade wars pan out.

Then in DR Congo stops cobalt exports in attempt to halt sliding prices (Financial Times, Leslie Hook and Tom Wilson) we see that the DRC announced that it is ceasing cobalt exports, an ingredient commonly used in EV batteries, in order to arrest the commodity’s slide in price. All of its cobalt exports will be suspended for the next four months. The DRC is the world’s biggest exporter of cobalt. * SO WHAT? * This is a dramatic move but it could play into the hands of Indonesia, which is the world’s second biggest producer of cobalt. The success of this move will depend on how strictly the ban is enforced.

Apple to invest $500bn in US as it scrambles to beat Trump’s China tariffs (Daily Telegraph, James Titcomb) highights the tech giant’s hiring push where it has promised to spend $500bn and take on 20,000 new staff in the US over the next four years in the latest attempt by corporate America to curry favour with Trump. Apple’s plans will cover the construction of an advanced server manufacturing facility in Texas, production for Apple TV and buying microchips made in Arizona by TSMC. Apple is famous for doing all the design in America but then outsourcing assembly to countries like China in particular. Apple Joins Slew of Companies Touting More U.S. Jobs. How Much Is New? (Wall Street Journal, Aaron Tilley, Theo Francis and Amrith Ramkumar) has an interesting take on this, however, as it says that this kind of behaviour fits in with a long tradition of businesses pretty much re-hashing existing hiring plans (perhaps with a bit extra) to incoming presidents to make it look like they’re doing something new when, in reality, they’re just re-marketing what they were already going to do anyway. Apple did it in the past when Trump came into office the first time around and then again at the beginning of Biden’s term. * SO WHAT? * You would have thought that everyone’s going to be doing this because they will be keen to get on Trump’s right side.

Then in Starbucks to lay off 1,100 corporate workers in CEO’s restructuring plan (The Guardian, Michael Sainato) we see that the coffee chain announced its biggest round of layoffs in the company’s history. It is also going to close several hundred open vacant job positions. The company employs around 16,000 staff around the world with 10,000 of those being in America.

Warehouse, roasting and store employees will not be affected. * SO WHAT? * This sort of dramatic action makes sense given that the CEO only started in September last year. He’s done a review, tried to change the culture and now has the axe out. Investors love this sort of classic new guy playbook, employees less so. Once these changes have time to percolate, investors will want to see evidence of these changes working otherwise questions will be asked. For now, though, the CEO seems to be doing all the right things.

Chinese investment surge into Vietnam raises risk of Donald Trump retaliation (Financial Times, A. Anantha Lakshmi) highlights the potentially precarious position that Vietnam may be placed in because it’s not going to escape Trump’s notice that Chinese companies are now accounting for about a third of new investments in the country. Vietnam has been a major beneficiary of the US-China trade wars because it has been used as a manufacturing base outside China to get around US sanctions. However, the trend has developed so much that it now has a trade surplus of $123.5bn with the US, the third highest surplus after China and Mexico. * SO WHAT? * Chinese companies have been investing increasing amounts in the country because they have been feeling the pressure of buyers in the US and Europe to move out of China so that they can get a different “certificate of origin”. Vietnam’s fate will depend on Trump’s whims and it’s not looking good because the US makes up almost 30% of Vietnam’s exports.

Huawei improves AI chip production in boost for China’s tech goals (Financial Times, Zijing Wu and Eleanor Olcott) highlights a major breakthrough in yield – the percentage of functional chips manufactured on its production line – which means that it will be able to produce more AI chips. Its previous yield had been about 20% a year ago, but this has now climbed to almost 40%. * SO WHAT? * This yield improvement means that Huawei’s Ascend chips have become profitable for the first time and the company continues to target a yield of 60%, the industry standard for this type of chip. Advances in this area will help to wean China off reliance on foreign chips and support its growing AI industry reach full independence. Huawei currently accounts for over 75% of the output of AI chips in China!

In other AI news, Creative industries protest against UK plan about AI and copyright (Financial Times, Daniel Thomas and Anna Gross)  highlights protests by musicians, artists, authors and journalists ahead of the closure today of a government consultation into plans for the future of copyright and AI. The government is pushing for companies, artists and authors to opt their work

out of being used to train models. * SO WHAT? * On the one side, tech companies need access to vast oceans of resources to train their models in order to improve their AI but on the other, those who create the material need to get paid. The artists say that an opt-out model is harder to enforce and puts the burden and costs on artists, most of whom won’t be able to afford it. The government argues that the material is already out there and if we restrict model access now we’ll have neither protected creative industries nor a domestic AI industry.

Then in Weather forecasting takes big step forward with Europe’s new AI system (Financial Times, Clive Cookson) we see that the European Centre for Medium-range Weather Forecasts (ECMWF) is launching a new model whose powers of prediction have been vastly improved by the use of AI. Although AI is already used in meteorological offices around the world, this model can outperform traditional forecasting methods (by about 20%!) for up to 15 days in advance! Sounds great, don’t you think??

In a quick scoot around some of today’s other interesting stories, Energy targets ‘make 80% of commercial properties unlettable’ (The Times, Tom Howard) highlights the current state of commercial property as over 80% of commercial properties won’t be fit to let from 2030 without major investment to upgrade their energy performance certificate (EPC) to a rating of A or B by 2030. Research from the British Property Federation says that, right now, 83% of commercial properties in England’s major cities have an EPC rating of C or worse where A is the most efficient and G is the least. Is commercial property primed for mass consolidation? (The Times, Tom Howard) highlights low valuations of the likes of Great Portland Estates, Shaftsbury Capital, British Land and Land Securities and why this may lead to consolidation in the industry. * SO WHAT? * Commercial property is in a tricky spot at the moment because it’s been buffeted by WFH, the trend for shorter leases, rising insolvencies and tightening environmental rules. You would have thought that the time is ripe for consolidation here as bigger players could presumably better afford to upgrade their property portfolios and rents seem to be on a rising trend after a few years in the wilderness. Will the Americans clear up here with their strong dollar??

In retail news, B&M issues profit warning as boss leaves ahead of Reeves tax raid (Daily Telegraph, Chris Price) shows that the discount retailer has announced a profit warning and the exit of its CEO who is “retiring”. The company is likely to be exponentially hit by Reeves’s NIC tax raid and minimum wage hike.

JPMorgan Chase sets aside $50bn for direct lending in private credit push (Financial Times, Eric Platt and Joshua Franklin) is an interesting article that names the latest bank to siphon off

a lump of cash to finance a push into private credit, the area that has been so fruitful for private equity firms. In actual fact, JP Morgan launched its push into direct lending in 2021 and has thus far put $10bn into over 100 private credit transactions, so it does have some track record in this area! * SO WHAT? * Banks have been queueing up to follow their racier rivals into this increasingly lucrative area. FWIW, I think that this area could be highly lucrative for banks – especially if private credit gets regulated. If that happens, I would have thought that entities that aren’t banks may suffer whereas those that are will be highly accustomed to being regulated!

Then in Just Eat sold at bargain price as takeaway boom fades (Daily Telegraph, Matthew Field) we see that the Anglo-Dutch food delivery giant has just agreed to a takeover offer from investment group Prosus at a price that is less than a third of what it was worth at its pandemic peak. The takeover offer was confirmed at £3.4bn versus the company’s peak valuation of £14.2bn back in 2021. Interestingly, Prosus had previously tried to buy Just Eat in 2019 for over £5.5bn but was beaten to it by Dutch rival Takeaway.com. Prosus is majority owned by South African media conglomerate Naspers and was spun out of the group which was made famous by its early investment in Tencent in 2001. Prosus’s CEO is keen to take the “opportunity to create a European tech champion”. Just Eat deal delivers a fresh playbook for Prosus (Financial Times, Lex) observes that Prosus could bring expertise to the party via its holdings in other food delivery groups like Brazil’s iFood.

Who knew you could catch fish using a melon?? These guys did – wait for it 👀!!!