United States: Done deal.
Also: Russia, Ukraine, Mozambique, Europe, Afghanistan, Indonesia and Malaysia.
UNITED STATES. Done deal.
The US avoids defaulting on its debts, just.
The US Senate passed legislation late Thursday to suspend the national debt ceiling, subject to spending limits, until January 2025. In a 63-36 bipartisan vote, passage came less than 24 hours after the House approved the bill.
INTELLIGENCE. Biden and Speaker Kevin McCarthy won broad plaudits, despite strong objections from some within their respective parties, including that the so-called Fiscal Responsibility Act didn’t secure additional funding for Ukraine. While next year’s defence spend is capped at $886 billion (up 3.3%), the White House will be able to continue to fund Kyiv’s war efforts via emergency requests and through the 2024 election.
FOR BUSINESS. Biden will not need to make an emergency request any time soon – there is ample cash per existing allocations, in part due to Pentagon accounting errors. A more substantive economic problem however looms in terms of interest rates. Figures due today will forecast a 29th straight monthly expansion of the US job market. Continued robust hiring and inevitable wage growth undermine efforts to tamp down persistent inflation.
RUSSIA. UKRAINE. Droning on.
Kyiv strikes Russian energy assets.
Drones struck two Russian oil refineries on Wednesday. Kyiv denied responsibility but predicted more attacks. The US on Thursday said it would stop providing Russia with some notifications under the New START arms control treaty.
INTELLIGENCE. One refinery was left unscathed, the other was engulfed in flames. Whether directly or via proxies, Kyiv is peppering Moscow in advance of its long-awaited counteroffensive. Though the Kremlin may appear to have ceded the initiative, and is busy buttressing defences along its 1,500-kilometre front, its control of Bakhmut is slowly consolidating, and it has been lobbing both drones and missiles on a nightly basis to weaken Kyiv’s defences.
FOR BUSINESS. The aerial tit-for-tat reveals little about the direction of the conflict; it will be decided on the ground during an actual counteroffensive. The International Monetary Fund announced on Tuesday a disbursement of $900 million to Kyiv, citing stronger-than-expected economic growth, which per the IMF will equal 1-3% this year. McKinsey said 98% Ukrainian firms polled continue to operate despite “deep and wide-ranging” hits to revenues.
RUSSIA. MOZAMBIQUE. Spread the Lavrov.
The Kremlin grants military aid to Mozambique.
Russian Foreign Minister Sergei Lavrov announced in Maputo that Russia and Mozambique will resume military cooperation, after a five-year pause. Lavrov is touring African nations ahead of a BRICS summit in South Africa.
INTELLIGENCE. Moscow will aid Maputo in its fight against insurgents in the east African country’s north, providing military supplies. The Russian government and its private proxies, including the paramilitary Wagner Group, are increasingly active across the continent. Lavrov’s Ukrainian counterpart, Foreign Minister Dmytro Kuleba, also visited Mozambique just last week, pushing to gain Maputo’s support against Moscow. He left empty-handed.
FOR BUSINESS. In South Africa, Lavrov met with China’s deputy foreign minister, and other emissaries of the BRICS, which could soon expand to include Saudi Arabia, Iran and the UAE. Pretoria confirmed Putin has been invited to attend the August summit, despite an outstanding International Criminal Court arrest warrant. The bloc’s united support for Russia shows the limits of Western influence in the world’s biggest emerging markets.
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EUROPE. INFLATION. Interested?
As prices edge down in Europe, will interest rates edge up?
Euro zone inflation fell to 6.1% year-on-year in May, down from 7% in April. Core inflation, which excludes shifts in food and fuel, fell however by just 0.3%. The European Central Bank meets in two weeks to consider whether to lift rates.
INTELLIGENCE. Inflation is now at the lowest rate since Russia invaded Ukraine in February 2022. And it’s falling quicker than expected. But inflation is not evenly distributed across Europe: down in France and Germany, up in Italy. And ECB President Christine Lagarde said on Thursday there is no clear evidence core inflation has peaked, current rates far exceed the 2% target, and more hikes are needed. The ECB has added 375 basis points since July 2022.
FOR BUSINESS. Europe’s inflation continues to be sustained by Russia’s invasion of Ukraine: energy is still expensive, with cheap Russian gas largely out of the mix. So too is food, notwithstanding ongoing efforts to secure Black Sea grain exports, as agricultural costs largely derive from energy costs locked in under long-term contracts. Still, some may be exaggerating the dilemma: Allianz estimates that 10-20% of European food inflation is down to profiteering.
AFGHANISTAN. QATAR. Candour in Kandahar.
The Taliban comes up for air.
Qatar’s prime minister met with Afghanistan’s supreme leader on 12 May in Kandahar, Reuters has reported this week. It was allegedly Haibatullah Akhunzada’s first public meeting with a foreign leader since the US withdrew in 2021.
INTELLIGENCE. The leaders were said to have discussed key disputes between the Taliban and the international community. The West bemoans a ban on older girls’ education, restrictions on women’s employment, and the regime’s tolerance for extremist groups. Qatar is a natural mediator, having positioned itself as the facilitator of humanitarian interests in the region, including by working with both Israel and the militant group, Hamas.
FOR BUSINESS. The Taliban, having seen off the US only 18 months ago, won’t compromise on its hard-line Islamic vision. And for so long as Akhunzada retains ultimate control, he will only tinker. After his meeting with the Qatari PM, a hard-liner Afghan PM was replaced with a “caretaker”, Maulvi Abdul Kabir, who played a role in negotiating the 2020 Doha Agreement with the US. Increased economic and humanitarian aid may yield more openness, in time.
INDONESIA. MALAYSIA. EU. Palm spoil.
The Southeast Asian neighbours tell the EU it can wait for its trade deals.
Malaysia’s deputy prime minister said no on Wednesday to an EU trade deal, requesting better treatment of its palm oil producers. Indonesia’s Minister of Economic Affairs (and presidential candidate) Airlangga Hartarto said the same.
INTELLIGENCE. The EU recently banned the import of products from land cleared of forests, whether by corporations or smallholders. Indonesia had been negotiating a free trade agreement with the EU for seven years, but will pause until its small palm oil producers are given leniency. Per Hartarto: “we can wait an additional seven years.” Malaysia is in no rush either. The neighbours are accustomed to long-running trade spats with picky customers.
FOR BUSINESS. Europe is a bad palm oil market – its imports are set to halve by 2032. But with control of 83% of the world’s production, Kuala Lumpur and Jakarta are keen to not have their palm oil deemed “high risk” by the EU, lest this reduces its competitiveness in other more prospective markets. Neither side will concede soon. The EU will not want to be seen to give up on its anti-deforestation agenda, and the palm oil producers will find less principled buyers.
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