>>> Barron’s Weekend Summary

Cover:
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Interview:
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Tech Trader:
-President Donald Trump visited Saudi Arabia to discuss artificial intelligence, focusing on the creation of onshore "sovereign AI" data centers. Saudi Arabia wants to control its own AI future and has sought approval from Trump to acquire the highest-powered AI chips from Nvidia. Nvidia has been highlighting sovereign AI as a growth driver since its November 2023 earnings call. National investment in computing capacity is a new economic imperative, as people cannot afford to export their country's knowledge and culture for someone else to resell AI back to them. Saudi Arabia announced its vehicle for sovereign investment into AI, called Humain, as part of its $100B "Project Transcendence" aimed at making Saudi Arabia an international tech hub. Humain will initially use AI chips from start-up Groq, which already operates a data center in Saudi Arabia. Over the next five years, Humain plans to build massive Saudi data centers populated by advanced chips from Nvidia and Advanced Micro Devices.

The Trader:
-Federal Reserve Chair Jerome Powell warned of erratic inflation in the coming years, while retail sales slowed from March levels. Walmart warned of higher prices, consumer sentiment tumbled, and Meta Platforms fell on reports of delaying its large-language model rollout. President Donald Trump's budget bill seemed to get delayed in the House. However, none of these issues mattered, as the artificial-intelligence trade made a grand return and the US and China agreed to reduce their reciprocal tariffs by 115 percentage points for 90 days. The AI trade also gained a boost, with Nvidia jumping double digits. Trump's visit to Saudi Arabia highlighted the growing appetite for sovereign AI, with nations racing to use US chips for onshore projects. The United Arab Emirates is expected to be the latest buyer of American AI technology, easing concerns that Silicon Valley was losing its edge to rivals in China. The US is expected to be the second biggest source of global AI capex, with spending expected to grow steadily in the coming years.
-Adobe stock has underperformed this year, falling 10% and ending 2024 with disappointing earnings. However, Heard Capital Founder William Heard argues that AI isn't the enemy, as Adobe is still the top tool for editing with its AI tool Firefly offering control at the pixel level. Adobe's products are trained on ethically sourced data with proper licensing, allowing images to be used for commercial purposes. Heard also points to Adobe's metrics being the best among peers and its gross margins approaching 90%. Adobe is trading well south of 20 times forward earnings, compared with historical values in the 30 to 40 times range. Heard believes that the market for AI is not a zero-sum game, with room for Adobe and peers to grow. He believes consensus estimates for Adobe to deliver earnings per share growth of more than 10% to $20.57 are still too low, and the shares should trade up to $700, representing a price-to-earnings ratio of 34 times, more in-line with historical levels. He also likes the company's seasoned management team, which has shown itself willing to remain innovative and relevant.

Features:
-The Federal Reserve is planning to reduce its head count by 10% over the next couple of years, according to Fed Chair Jerome Powell. The move is aimed at attrition across the Federal Reserve system, including the Washington, DC headquarters and 12 reserve banks nationwide. Powell has directed the leadership to find incremental ways to consolidate functions, modernize business practices, and ensure the agency is right-sized to meet its statutory mission. The reduction will be achieved through normal attrition and retirements, with the Board offering a voluntary deferred resignation program for Board staff eligible to retire by Dec. 31, 2027. Powell has previously defended the Fed's staffing levels, stating that the Fed runs a careful budget process and is not overstaffed, but "overworked, maybe." The Fed system employed nearly 24,000 workers as of 2023.

Europe:
-Lockheed Martin is focusing on increasing military spending in Europe to benefit the weapons maker, according to its vice president for international business, Raymond Piselli. Lockheed is establishing more production and supply chains in Europe, with about one-quarter of its sales going to international customers. From 2022 to 2024, international sales grew almost 5% a year on average, while U.S. business grew closer to 3% a year. European business was a standout, up about 11% a year on average. Lockheed exports about $20 billion in American-made military equipment annually, with exports of F-35 fighter jets, missiles, and Black Hawk helicopters expected to drive more growth in the coming years. The company also collaborates with European partners, such as Rheinmetall on rocket artillery produced in Germany.

Emerging Markets:
-No update

Commodities:
-No update

Streetwise:
-Fair Isaac, a credit analytics company, has risen from humble beginnings to bodacious territory, now worth $51B, which is close to FedEx at $55B. The company, based in Bozeman, Mont., has gone public decades earlier, selling 1.4M shares at $9.50 apiece in July 1987. An investor who bought that day has since made 172,000%. Fair Isaac has ridden powerful business trends, starting in 1956 when credit assessment was shifting from paper records to computers. Engineer Bill Fair and mathematician Earl Isaac put up $400 apiece in start-up capital and sold their first credit score within two years. The Fair Credit Reporting Act in 1970 laid out rules for what would become the big three reporting firms: Equifax, Experian, and TransUnion. Fair Isaac was the obvious choice to interpret the different reports, and the company has since outperformed Apple over the long run. The company's success can be attributed to its ability to adapt to business trends and its ability to interpret different reports.

FT : Portugal blames France for delays to power links after Iberian blackout

Portugal blames France for delays to power links after Iberian blackout
Last month’s outage has revived a decades-long dispute over cross-border electricity connections

Portugal will appeal to the European Commission to pressure France over cross-border electricity links after a blackout last month, claiming that French delays on new connections have left the Iberian peninsula vulnerable.

The catastrophic outage, which began in Spain and took down Portugal’s electricity system, has reignited long-standing tensions over interconnections for trading power with France.

Madrid has yet to determine the root cause of the blackout on April 28 but some experts argue more power links to France would have made Spain part of a bigger and sturdier network, better able to withstand the initial shocks.

Portugal’s energy minister Maria da Graça Carvalho told the Financial Times that insufficient interconnections between France and Spain represented a “barrier” to the EU’s internal market, which meant European law gave Brussels the power to intervene.

“We will involve the president of the European Commission on this to make sure that we are all integrated and . . . we help each other to solve the problems,” said Carvalho, whose government is seeking another term in an election on Sunday. “This is a European question, it’s not a question between the three countries.”

The Iberian peninsula has some of the lowest levels of connectivity to the rest of the EU and France-Spain power links automatically disconnected to protect the wider grid on April 28, after the Spanish system began to collapse.

Madrid has for decades accused Paris of standing in the way of more electricity connections between the two countries, with suspicions it wants to shield France’s nuclear power plants from an influx of cheap Spanish solar and wind energy.

The French energy minister declined to comment. France’s grid operator, RTE, has rejected the idea it was blocking progress on cross-border links.

Xavier Piechaczyk, president of RTE, said: “We have always treated interconnections with Spain as a very serious issue, one on which there are French and European commitments. So it is wrong to say that France is not a driving force in interconnections with Spain.”

Piechaczyk pointed out that work was under way on a new connection via the Bay of Biscay, due to be completed in 2028, which will double the interconnection capacity between France and Spain to 5 gigawatts. A possible link between Landes in France and Navarre in Spain was given an €11mn EU grant for initial studies in January.

However, Nicolas Goldberg, an energy expert at Colombus Consulting, said “France hasn’t always been very accommodating on interconnections”.

He added that “strong biodiversity concerns” about the impact of construction in the Pyrenees mountain range had also slowed new projects.

Spain’s energy and environment ministry said more interconnections were a “priority” and that it was working “jointly” with France and the commission on the issue.

Despite the commission decreeing in 2015 that the EU should have a fully integrated energy market, the goal is yet to be achieved.

“If there is a breach of the internal market, the European Commission can act,” Carvalho said. “We have to put it in this perspective as . . . an internal market question, because it’s there that the European Commission can put pressure on France to speed up this interconnection.”

The commission has in the past opened legal proceedings over grid connections between EU countries, but there have been none related to the Iberian peninsula or that cite internal market rules. An EU official said interconnectors across the Pyrenees were, however, “a priority for the commission”.

Portugal is taking the fight to France even as it continues to put a post-blackout limit on its own imports of Spanish electricity, a “precaution” that has driven up Portuguese electricity prices.

Portugal was importing 35 per cent of its electricity from Spain on the morning of April 28 because of the low cost of Spanish solar power.

Spain’s Prime Minister Pedro Sánchez has dismissed arguments that his country’s dependence on renewables was to blame for the widespread blackout.

Brussels in 2002 set targets for member states to have an electricity import capacity equal to 10 per cent of their domestic generation by 2020 and for that figure to reach 15 per cent by 2030. Madrid says the France-Spain connection is below 3 per cent.

FT : ECB may have to cut interest rates below 2%, former hawk says

ECB may have to cut interest rates below 2%, former hawk says
Downside risks to growth and inflation have become bigger, Belgian’s central bank governor warns

The European Central Bank must stand ready to lower borrowing costs to “slightly below” 2 per cent as global trade wars threaten to drag down consumer prices, a top official has said.

“If I look at the economy — the shocks we are confronted with and the uncertainty on growth — it might warrant to be mildly supportive,” Belgium’s central bank governor Pierre Wunsch told the Financial Times in an interview ahead of the ECB’s next meeting on June 5.

This could imply lowering the central bank’s key deposit facility rate to “slightly below 2 per cent”, he said. The ECB has lowered its benchmark interest rate seven times since June from 4 per cent to 2.25 per cent.

Markets currently expect that the ECB will cut borrowing costs by a quarter-point in June and again by the same amount in the second half of the year to bring the deposit facility rate to 1.75 per cent, according to Reuters data. Some economists forecast the cental bank might have to increase rates again in 2026.

Wunsch said he was “not shocked” when he looked at market forecasts. “The way I read them is that, somewhere around the end of 2025, we could be mildly supportive,” he said.

Wunsch’s comments in favour of further cuts mark a stark departure from his relatively hawkish stance in the past. In February he had told the FT the ECB should not “sleepwalk to 2 per cent [interest rates] without thinking about it”.

His remarks also mean that ECB hawk Isabel Schnabel appears to be increasingly isolated among the 26 members of the ECB’s governing council that decide rates. Schnabel argued in a speech in the US on May 9 that global trade wars threatened to push up inflation in the Eurozone, limiting the room for further interest rate cuts.

Explaining his change in view, Wunsch said developments since US President Donald Trump’s sweeping tariffs announcements on April 2 had created clear “downside risks to inflation” in the Euro area, as well as additional threats to economic growth.

Eurozone inflation remained above the ECB’s 2 per cent target at 2.2 per cent in April, although economists said factors such as lower oil prices had yet to feed through to consumer prices.

Wunsch also pointed to the surprise appreciation of the euro against the dollar after so-called liberation day, when Trump announced steep tariffs on most US trading partners — including levies of 20 per cent on nearly all exports from the EU. These “reciprocal tariffs” were lowered to 10 per cent on April 9 for 90 days to allow for negotiations.

The stronger euro meant that imports had become cheaper for European consumers, which could slow down inflation, Wunsch argued. The sharp drop in energy prices since early April and the prospect of cheaper goods from China were likely to have similar effects, he added.

Germany’s new €1 trillion debt-funded spending plans to strengthen its army and public infrastructure won’t offset the drag on inflation from the tariff wars over the short term, Wunsch said.

“Fiscal policy takes time before it becomes supportive,” he said, arguing that the euro area may be exposed to a “negative [economic] shock in the short term” which may be followed by a “positive shock in 2026 and 2027.”

While arguing against an overly hawkish stance, the Belgian central bank governor currently saw no case for a larger, half-point cut in the foreseeable future. Wunsch also stressed that he was currently “not pleading” to lower interest rates below 2 per cent “but I’m open to contemplate this possibility”.

European Commission president Ursula von der Leyen said this month that the EU remained “fully committed to finding negotiated outcomes with the US” but the bloc was preparing for “all possibilities”.

Wunsch warned that even in the UK’s trade deal with the US, Trump’s “reciprocal tariff” was 10 per cent.

“That’s big,” Wunsch said, adding it was likely to lead to “lower growth in the US, potentially higher prices and less efficient value chains”.

FT : Swiss footwear upstart On bets big on China

Swiss footwear upstart On bets big on China
Fast-growing trainer maker backed by Roger Federer joins brands taking global market share from Nike and Adidas

On, the Swiss footwear company backed by tennis star Roger Federer that is one of the world’s fastest-growing running brands, is stepping up a push to tap the booming health and fitness industry in China as it looks to the Asian powerhouse economy to drive further expansion.

Known for the distinctive holes in their springy “CloudTec” soles, On’s shoes have become a popular choice both among runners and leisure consumers, from Silicon Valley tech entrepreneurs to trendsetters in the trainer hotspot of Japan.

Shares in the company, which launched in 2010, have roughly doubled since it listed in New York in 2021, giving it a market capitalisation of almost $20bn and confirming its status as one the leading upstart brands taking market share from industry leaders Nike and Adidas.

Having enjoyed a meteoric rise in the US thanks to partnerships with the likes of Hollywood star Zendaya and luxury group Loewe, On is now banking on Asia, particularly mainland China and Japan, to drive a large chunk of its future growth.

“Very soon China will be among the top three markets for us . . . our goal is to bring China to 10 per cent of our global net sales over the next two to three years,” co-chief executive and chief financial officer Martin Hoffman told the Financial Times.

The company last week reported first-quarter net sales in Asia that were up 130 per cent on a year earlier to Sfr120mn, its strongest growth of any major market. Global net sales were up 40 per cent to SFr726.6mn on a constant currency basis.

On already has a presence in mainland China, where it is part of a wider boom in sports and leisurewear. The brand has a store in Shanghai’s upmarket shopping and entertainment district Xintiandi — part of a cluster that also includes Lululemon, Descente, Salomon and a nearby Hoka — and in April it opened a new flagship store in Chengdu, its biggest in China.

The growth in China of premium sportswear brands such as On, whose Cloud X 4 AD shoes are priced at Rmb1,190 ($165), is at odds with the broader luxury downturn, which has hit global companies from France’s LVMH to its Swiss rival Richemont.

“We clearly see that customers are moving away from luxury into the premium segment which is right where we are,” Hoffman said.

Restarting manufacturing in China for the Chinese market, after shifting much of its production to Vietnam and Indonesia, was also on the “road map”, he said.

Hoffman said the tariffs imposed by the Trump administration had exposed the company to uncertainty but that its latest results had shown it was on the “right track”.

However, it faces stiff competition in the country, and not just from its upstart rivals — Adidas, which reported double-digit sales growth in China last year, has also been expanding its store presence in the mainland.

Meanwhile, domestic brands such as Anta Sports, Li-Ning, and Xtep have gained significant market share and revenue as they tap into the appeal of homegrown companies. Anta, China’s biggest sportswear group, reported better than expected sales in 2024 after benefiting from an endorsement deal with US basketball star Kyrie Irving.

Hoffman said it was “very early” for On in China, and it was focused on setting new standards for consumers.

“We provide a very unique product, we have a unique identity [as a ]Swiss brand, which also, we hope, helps in the current environment,” he said.

FT : Can Britain’s neighbours help it keep the lights on?

Can Britain’s neighbours help it keep the lights on?
Greater interconnection should boost system’s resilience but also exposes electricity to political tensions

As cold, still weather settled across Britain on January 8 and with coal-fired power plants turned off for good, the team in charge of keeping the country’s lights on turned to other power sources hundreds of miles away. 

National Grid’s Energy System Operator paid up to £179 per megawatt hour — more than double the typical rate for electricity bought a day ahead — to import electricity from Denmark via the Viking Link, a 475-mile undersea cable that stretches between Jutland and Lincolnshire.

Denmark, in turn, had to pull in electricity from Germany. “It was a tight day,” said Fintan Devenney, senior energy analyst at advisory firm Montel. 

The trade highlights Britain’s growing reliance on importing and exporting electricity from and to neighbours — which is set to increase as the country seeks to make wind turbines and solar panels the backbone of the electricity system, as part of its plan to decarbonise power by 2030. 

Greater interconnection should make the system more resilient. Yet it also exposes electricity supplies to international political tensions. Some of those are already coming to bear: rising protectionism over electricity exports and complaints over post-Brexit barriers to British exports to the EU.

Prime Minister Sir Keir Starmer is expected to push for closer links with the EU’s energy and carbon markets as part of the much-anticipated EU-UK “reset” summit taking place in London on Monday.

“It’s all on the table currently [but] being held up by silly things like fishing negotiations,” said one government figure. “It has the full support of industry the UK-side.”

Britain’s electricity cables to neighbours have proliferated since the first to France came online in 1961. Ten now link Britain to France, the Netherlands, Belgium, Northern Ireland and the Republic of Ireland, Norway and Denmark.

In 2023, the latest year which for data is available, the UK imported a net 23.8 terawatt hours of electricity, or about 7.5 per cent of domestic demand.

Several more “interconnector” cables out of Britain are planned alongside the growth of wind and solar power, both in Britain and on the continent.

Along with zonal pricing and demand-side flexibility, they are a means of tackling the intermittency of renewables by, in effect, increasing the size and flexibility of the market.


Power can be imported when it is less windy in Britain, potentially at lower cost than turning on domestic supply, and exported on blustery or very sunny days when the country has more than it can handle.

The UK government wants to more than double Britain’s current 31.4 gigawatt wind capacity and almost triple solar power capacity by 2030, by which point interconnector is forecast to have risen by about 4GW.

If those goals are met, NESO estimates Britain would become a net exporter of electricity in five years’ time.

“In electricity terms we are not an island,” said Ben Wilson, president of National Grid Ventures, a division of National Grid, which owns the Viking and other cables and is developing others. “We are well connected.”

Greater interconnection between countries is also a key goal in the EU. Yet rising power prices and energy security concerns have started to test the limits of that ambition.

In January 2023, Norway set out measures allowing energy exports to be curtailed if there was a risk of domestic shortages, and shortly after refused permission for a new interconnector to Scotland.

The coalition government in Oslo collapsed in January because of opposition to EU energy policies by the Centre party, the junior partner.

But Norway’s ruling Labour party is also sceptical: it has asked Statnett, the state-owned electricity system operator, to postpone planning for any new interconnectors until 2029. It also wants to switch off two of three cables to Denmark when they come up for renewal in 2026.


Energy prices and interconnectors are set to feature prominently in Norwegian parliamentary elections in September.

Adam Bell, director of policy at consultancy Stonehaven and former head of energy strategy in the UK government, said: “I think Norway has now realised they have a very valuable resource that they are in effect giving away very cheaply, and it’s not unreasonable for them to want to create some scarcity.”

Britain has imported £2.9bn worth of electricity from Norway since the first cable between the two opened in October 2021, highlighting its reliance on the Scandinavian country for its own electricity supplies.

Pranav Menon, at Aurora Energy Research, said Britain could benefit if Norway cut capacity only to Denmark, owing to reduced competition for exports. But political rhetoric in Norway suggested it may not, he cautioned. 

“A loss of interconnection with Norway is likely to significantly increase price volatility in the near term,” Menon added. 

Exports are also coming under scrutiny in France, Britain’s largest source of imports. In legislative elections last year in which the far-right party won nearly one-third of the vote, Marine Le Pen’s Rassemblement National put forward proposals to take greater control of exports.

France and Norway are particularly important to Europe’s electricity system, since their respective nuclear and hydropower supplies help protect against the risk of simultaneously low or high wind supplies across the north of the continent.

Experts differ on the severity of that risk, although recent research by consultancy Wood Mackenzie pointed to a “wind drought” across northern Europe in March 2021, noting a “strong correlation” between onshore and offshore fleets in 2020 “across a broad geographic footprint”.


Analysis by the International Energy Agency shows that, roughly five or six times over the past 30 years, cold, low wind spells have simultaneously affected large parts of Europe for a week or more, including areas where most onshore and offshore projects are located. 

Protectionist moves comes as Brexit has introduced new trading barriers, which are pushing up costs and threatening new investment, industry analysts and lobbyists warn.

Britain’s exit from the EU’s single energy market means that interconnector capacity between the two is no longer automatically allocated but needs to be expressly purchased by traders in separate auctions, resulting in a less efficient market.  

Moreover, industry warns that Britain’s electricity exports to the EU will be heavily taxed from 2026 due to the combined effect of the EU’s carbon border tax and Britain’s split from the EU’s emissions trading scheme. 

Simon Virley, head of energy at advisory firm KPMG UK, said there was a lot at stake as Starmer prepares to meet European Commission president Ursula von der Leyen in London.

Ministers hope to improve “market linking” between the UK and EU over interconnectors while also linking emission trading schemes.

“Harmonising energy trading rules, and removing current frictions, could help lower bills for consumers and ensure greater energy security and resilience,” Virley said.

In theory, taking more rules from the EU could be politically contentious, although ministers believe the issue is too technical to become a problem on the doorstep. “I doubt anyone would notice or care except [Nigel] Farage,” said the UK government figure.

A government spokesperson said “We are resetting our relationship with the EU to improve trade and investment and promote climate, energy, and economic security.

“We look forward to hosting the European Commission for the UK-EU Summit next week, where we hope to make real progress on these issues.” 

Wilson at National Grid agreed there was an “opportunity” to re-link electricity and carbon trading, which would be “mutually beneficial”.

In the meantime, National Grid and others are forging ahead with new interconnector projects, including ‘hybrid’ projects connecting North Sea wind farms to markets on either side.

“Security of supply lies in diversity,” he added.

FT : US nuclear sector goes on spending spree to fight subsidy cuts

US nuclear sector goes on spending spree to fight subsidy cuts
Sam Altman-backed Oklo increased lobbying budget by 500 per cent year-on-year

The US nuclear industry is intensifying its lobbying blitz to save the Inflation Reduction Act tax credits it says are vital for meeting artificial intelligence-fuelled energy demand.

On Monday lawmakers from the ways and means committee, which is responsible for writing tax law, released draft legislation that would phase out nuclear energy subsidies starting in 2029, in a move that caught the sector by surprise.

Lobbyists are now racing to persuade lawmakers to rescind or moderate cuts to nuclear industry subsidies, which until recently had more bipartisan support than other low-carbon energy technologies such as wind and solar.

“You’re going to see an aggressive push,” said Frank Maisano, a partner in the policy and resolution group of Bracewell, a law and lobbying firm.

In the first quarter of 2025 nuclear companies and industry bodies have upped their spending on lobbying. Oklo, the nuclear technology company backed by OpenAI chief executive officer Sam Altman spent $424,000 an increase of more than 500 per cent year-on-year.

Oklo chief executive officer Jacob DeWitte said that the ways and means proposal “undermines the momentum” in the US nuclear sector.

“It’s hard to overstate the value of the tax credits on helping to de-risk early-stage capital and project developments . . . if the idea is to lead and dominate in this space, we need to use all the tools in the tool belt.”

NuScale Power and TerraPower, nuclear reactor developers, as well as the Nuclear Energy Institute, also increased their spending. Constellation Energy, which has partnered with Microsoft to restart the Three Mile Island plant in Pennsylvania, spent over $1.7mn in the first quarter on lobbying across its portfolio, a 16 per cent increase.

Industry advocates said they aim to appeal to moderates such as Lisa Murkowski, the senator from Alaska, and Henry McMaster, governor of South Carolina, who already host nuclear facilities in their states. They also hope to spur intervention from President Donald Trump, who has praised nuclear development.

Next week the administration is expected to release an executive order to speed up the construction of nuclear power plants by amending federal safety regulations.


“What came out of ways and means is concerning and disappointing,” said Heather Reams, president of Citizens for Responsible Energy Solutions, a centre-right energy lobby group. “It isn’t hitting the marks on what the president’s nuclear goals are . . . when he [weighs in] that will have a lot of sway.”

Lobbyists are also expected to object to the timeframes suggested in the draft, which they say threaten the development of nascent technologies like small modular reactors (SMRs) that are critical for meeting the AI fuelled energy demand.

“We want to encourage the nuclear industry,” said Eric Levine, a Republican lobbyist. “If we’re not bringing energy to grid, all the AI technology in the world is useless if we can’t power it.”

However some nuclear companies see the cuts as an opportunity to bring private capital to the sector.

“Industries that rely on federal subsidies tend to get stuck in ruts and less favourable towards innovation,” said Isaiah Taylor, CEO of Valar Atomics. “I like the direction that the administration is taking on this, in allowing it to be private and faster.”

>>> Weekend Papers Summary

FINANCIAL TIMES
-Moody's has lowered the US's triple-A credit rating to Aa1 from Aaa, warning of rising government debt and a widening budget deficit. The move comes amid concerns about the US's fiscal trajectory, with President Trump's Republican Party pursuing a budget bill that is expected to increase debt significantly over the next decade. Moody's expects federal deficits to widen to almost 9% of GDP by 2035, up from 6.4% last year, due to increased interest payments on debt, entitlement spending, and low revenue generation. The agency's downgrade reflects the increase in government debt and interest payment ratios over the past decade.
-President Trump's recent visit to the Middle East has sparked a debate among world leaders about how to manage his unpredictable and unpredictable style of dealings. While some Gulf countries have offered praise and investment pledges, others have resisted. China, for instance, has been resistant to Trump's praise or engagement, despite the punitive tariffs. However, on Monday, US and Chinese officials agreed to a sharp de-escalation in mutual import duties. The situation is similar to poker, where the game is about understanding the people you're playing with, and different countries with different tools and interests are trying to get different things. The UK has led the way in trying to pacify Trump and clinched an early trade agreement, while the EU has taken a different approach, betting that it will benefit more than suffer from a more protracted negotiation with Washington.
-The US and EU have started trade talks to counter Trump's tariffs, breaking a deadlock that left the bloc behind. They have exchanged negotiating documents for the first time, outlining areas of discussion including tariffs, digital trade, and investment opportunities. The European Commission's top trade official, Sabine Weyand, warned that some US tariffs would likely remain, especially on sectors the US wished to re-shore, such as steel and car manufacturing. The EU has made less progress with US officials than countries like Japan, South Korea, Vietnam, and the UK. Trump's trade representative, Jamieson Greer, urged the EU to expect Trump to reapply his April 2 tariffs in full.
-Russia and Ukraine are engaged in a diplomatic battle to convince Donald Trump that the other is the real impediment to peace. Russian President Vladimir Putin took a significant risk by slow rolling US negotiators over a peace proposal and refusing to attend talks with Ukraine's President Volodymyr Zelensky in Turkey. This refusal has met with little resistance and has not been enough to compel concessions or alter the course of his war. US President Donald Trump seemed to excuse the Russian leader's no-show and question the whole point of the Russia-Ukraine talks, saying "Nothing's gonna happen until Putin and I get together." This has revived fears that Trump will seek to cut a deal with Putin and sell Ukraine down the river. This suspicion is shared by some of America's closest allies, with German defense minister Boris Pistorius stating that Putin is trying to lead the American president down the garden path.
-President Trump's Middle East tour ended with a credit rating downgrade, gloomy consumer sentiment data, and challenges to his tax bill. Over the past two weeks, Trump's approval ratings have improved, and equity markets have bounced back after paused aggressive import tariffs. Labour market and inflation data have also been encouraging, defusing fears of a recession. However, Moody's stripped the US of its triple-a credit rating due to rising government debt. Consumer sentiment data showed confidence dropping to its second-lowest level on record, and conservative hardliners on the US House budget committee voted against Trump's biggest domestic legislative goal: a sweeping bill to extend tax cuts and enact deep government spending cuts.
-Trump, the US president, has been elected twice on the promise of being a decisive chief executive and bringing his business experience to bear. Foreign leaders have used the mantra "Trump is a businessman" to express their hopes for him to use his dealmaking experience to apply tariffs judiciously or put pressure on Russia. Since taking office, Trump has behaved like command-and-control corporate leaders, issuing executive orders at unprecedented speed and volume, and making appointments to cabinet positions and senior administrative roles from among loyalists. He has also pushed through radical cost-savings at federal departments and agencies with Elon Musk's help. However, the more capricious leader of the first term has re-emerged, initiating a rapid cull of members of his handpicked administration and staff.
-Portugal's immigration policy is on the ballot in elections, with the center-right government aiming to be tough without aping the far-right. The coalition's success depends on winning back voters from the populist Chega party, which has surged by harnessing voters' unease over a rise in immigration. António Leitão Amaro, the minister in charge of immigration, blamed the sharp increase on the "open doors" policy of previous Socialist governments. Amaro's Democratic Alliance is set to emerge as the largest party in the parliamentary election, but is forecast to fall short of a majority.
-Republicans are expressing concern over Donald Trump's policies, causing a decrease in consumer confidence in the US economy. The University of Michigan's overall index of consumer sentiment fell to 50.8 in May, while expectations fell to 46.5. The poll also revealed that people's expectations of inflation soared from 6.5% to 7.3%, the highest level since 1981, due to the Trump administration's trade war. Longer-term inflation expectations also increased from 4.4% to 4.6%, as registered Republicans became more concerned about the impact of tariffs on American prices. The elevated expectations come after inflation hit a four-year low of 2.3% in April.
-Rodrigo Duterte's arrest and transfer to the International Criminal Court in March led to the end of the Philippines' political dynasty. However, he was elected mayor of Davao City in absentia. Midterm polls have revitalized the Duterte family's political fortunes, with his daughter Sara running for a presidential election in 2028. The results could have far-reaching consequences for regional security and disputes in the South China Sea. The results could also threaten President Ferdinand Marcos Jr.'s administration, who has a bitter rivalry with the Duterte clan. The elections showed the Dutertes are still a dominant dynasty.
-Romanian markets are facing further turmoil following a dramatic sell-off following presidential elections this weekend, which could lead to the country losing its investment grade status and a drop in the leu against the euro. The ultranationalist candidate, George Simion, is running against the pro-EU centrist mayor of Bucharest Nicushor Dan. The collapse of the government and resignation of prime minister Marcel Ciolacu have left investors preparing for months of uncertainty over how a new government will cut the budget deficit, which ballooned to over 9% of GDP last year. Both candidates have promised to cut the deficit and rein in debt, but there is little clarity on how their plans will work.
NEW YORK TIMES
-A top adviser to the director of national intelligence, Tulsi Gabbard, has ordered a senior analyst to redo an assessment of the relationship between Venezuela's government and a gang after intelligence findings undercut the White House's justification for deporting migrants. The move follows a disclosure that intelligence agencies disagree with a key factual claim Trump made to invoke a wartime deportation law. The initial version countered a White House narrative, and a political appointee told a career official to rework the assessment, a direction that allies of the intelligence analyst said amounted to pressure to change the findings. Trump invoked the Alien Enemies Act to remove people accused of being members of the gang, Tren de Aragua, and claimed that Venezuela's government directed the gang to commit crimes inside the United States.
-The Supreme Court has extended a temporary block on using the Alien Enemies Act to deport Venezuelans, stating that the Trump administration will not be allowed to deport a group of Venezuelan detainees accused of being members of a violent gang under a rarely invoked wartime law while the matter is litigated in the courts. Justices Samuel A. Alito Jr. and Clarence Thomas dissented, arguing that the justices had no authority to hear the dispute at this stage.
-The Supreme Court has extended a temporary block on using the Alien Enemies Act to deport Venezuelans, stating that the Trump administration will not be allowed to deport a group of Venezuelan detainees accused of being members of a violent gang under a rarely invoked wartime law while the matter is litigated in the courts. Justices Samuel A. Alito Jr. and Clarence Thomas dissented, arguing that the justices had no authority to hear the dispute at this stage. The ruling deals a sharp blow to the Trump administration’s efforts to deploy the wartime law to pursue swift, sweeping deportations of Venezuelan migrants accused of being members of the gang, Tren de Aragua.
-Democrats who supported Biden's re-election bid are now seeking atonement as their party faces record low approval ratings. They are attempting to reposition themselves as truth-tellers of what happened in 2024. Some strategists argue that rebuilding trust in the Democratic brand begins with confronting how the party handled the 2024 race. Connecticut Democrat Senator Chris Murphy, who vouched for Biden's ability to communicate his re-election message, is leading the charge in attempting to erase past endorsements of Biden's acuity. Murphy believes that Biden suffered cognitive decline while in office.
-Gunfire was heard in central Gaza early Saturday, hours after the Israeli military said its forces were preparing for a major advance into the territory. The shots could be heard from the central city of Deir al Balah, but the origin of the sound was unknown. It was not immediately clear whether Israeli forces, which already hold large parts of the territory, had begun a new advance. A military spokeswoman declined to comment on whether troops had started to move.
The fighting came as mediators, including the Trump administration, sought to broker a new temporary truce. Israel and Hamas have been at war since October 7, 2023, when the Palestinian militants launched an attack on Israel in which about 1,200 people were killed and 250 taken hostage. The Israeli campaign in Gaza that followed has killed more than 50,000 people, according to Palestinian health officials.
-The United Arab Emirates (UAE) is investing heavily in Africa, seeking resources and power as the US and other economic powers reduce their investment, aid, and presence in the continent. Last year, the Emirati International Holding Company acquired a 51% stake in Zambia's Mopani Copper Mines for over $1 billion. The UAE is using its wealth and influence to fill the void left by the US and China, which have reduced their investment, aid, and presence in Africa. Since 2019, $110B worth of deals, mostly by firms aligned with ruling powers, have been announced, dwarfing amounts pledged by any other country.-

NEW YORK POST
-President Trump has accused Ukrainian President Volodymyr Zelensky of having "pissed away" billions of dollars in US aid for Ukraine, stating that the money is the money. Trump's criticism came in response to a question about placing sanctions on Russia. Zelensky's handling of US aid was a source of frustration for Trump, who criticized the $60 billion checks sent every time Zelensky traveled to Washington. Trump continued to voice his displeasure with Kyiv, stating that the US sends checks and cash, not equipment. When Trump argued that European nations should have contributed more than the US to the war effort, Baier tried to redirect him to his Putin question. Trump responded by arguing that the US has been "treated worse" than Europe by Ukraine and that the mess will get solved. Trump and Zelensky had a heated Oval Office back-and-forth earlier this year.
-Meta, parent of Facebook and Instagram, has been accused of allowing thousands of fraudulent ads on its platforms, despite a lack of crackdown on fraud cases to avoid losing ad revenue. The Wall Street Journal reported that Meta accounted for nearly half of all scam complaints related to Zelle (quick, digital money transfers between US bank accounts) transactions between mid-2023 and mid-2024.

TechCrunch : Epic Games asks judge to force Apple to approve Fortnite

Epic Games asks judge to force Apple to approve Fortnite

Epic Games is escalating its efforts to pressure Apple to allow its game Fortnite into its App Store, with a new court filing asking Judge Yvonne Gonzalez Rogers to require that Apple “accept any compliant version of Fortnite onto the U.S. storefront of the App Store.”

Epic and Apple have been engaged in a years-long legal battle over Apple’s App Store policies, particularly the commissions Apple charges for in-app purchases.

The Fortnite publisher scored a major victory last month when Judge Rogers ruled that Apple was in “willful violation” of an injunction on anti-competitive pricing — a ruling that seemed to pave the way for Fortnite to return to the App Store, and more broadly, for developers to offer alternative payment options in their apps.

However, Apple said it will appeal the ruling, and on Friday, Epic said Friday the company is blocking Fortnite from both its U.S. App Store and preventing it from being released on the Epic Games store in Europe: “Now, sadly, Fortnite on iOS will be offline worldwide until Apple unblocks it.”

Apple disputed this characterization, specifically the suggestion that it was blocking Fortnite outside the United States. Instead, the company said it asked Epic Sweden to “resubmit the app update without including the U.S. storefront of the App Store so as not to impact Fortnite in other geographies.”

But why block Fortnite in the United States? Epic released a letter signed by Mark A. Perry, an attorney representing Apple, telling Epic’s lawyers that “Apple has determined not to take action on the Fortnite app submission until after the Ninth Circuit rules on our pending request for a partial stay of the new injunction.”

In its filing, Epic argues that Apple is denying it “the ability to take advantage of the pro-competitive rules it helped usher in,” and “punishing” Epic “by shutting it out of the very market it has fought so hard to open — while sending a clear message to other developers not to challenge Apple’s practices.”

NYT : Inside the Rift Over Trump’s A.I. Deals in the Gulf

Inside the Rift Over Trump’s A.I. Deals in the Gulf
The president’s Middle East visit produced multibillion-dollar technology investments by the Saudis and Emiratis. But they face political pushback at home.

Cashing in chips
Whatever ambitious foreign policy goals President Trump held for his Middle East trip, at least the entourage of business leaders who’ve accompanied him there seem happy.

The president is set to wrap up his three-country tour on Friday, after striking a litany of pledges by oil-rich Gulf states to deepen business ties with U.S. companies. “We’re developing a lot of fans,” Trump said at a news conference on Friday.

But the deal flow is already drawing political pushback at home.

A recap: The American chip giants Nvidia and AMD will now be allowed to sell advanced chips to Saudi, Emirati and Qatari customers as those countries seek to become powerhouses in artificial intelligence. One customer is an enormous new A.I. campus in Abu Dhabi whose ambitions rival Stargate, the OpenAI-led venture, in size.

The deals underscore a rift in the Trump administration on A.I. David Sacks and Sriram Krishnan, venture capitalists who’ve become the president’s top A.I. advisers, were chief negotiators of the deals, The Times reports, working closely with C.E.O.s including Nvidia’s Jensen Huang and Sam Altman of OpenAI. Also in the picture was Khaldoon Al Mubarak, the head of the Emirati sovereign wealth fund Mubadala Investment, which has become a major financer of A.I. initiatives.

The agreements have raised questions from security hawks in both U.S. political parties. The administration of former President Joe Biden had put limits on exports of advanced tech to the region, partly because of fears the equipment might find its way to China.

Some Trump officials are already weighing how to pause the deals over concerns they risk breaching security red lines, including that the technology could fall into the wrong hands, according to Bloomberg.

Investors are shrugging that off. Shares in Nvidia and AMD soared this week after the deals began to be announced, giving a lift to the Magnificent 7 group of A.I.-focused stocks. Tech still faces antitrust headwinds — more on that below — but some on Wall Street see this week’s trip as opening a potential windfall for the sector.

It could lift revenues for Nvidia and AMD in the coming quarters and even provide a boost to Micron, another chip maker that supplies those companies, Christopher Danely, a tech analyst at Citigroup, wrote in a research note on Thursday.

NYT : What Has Changed Since Silicon Valley Bank Collapsed? Not Much.

What Has Changed Since Silicon Valley Bank Collapsed? Not Much.
Two years later, no major legislation or regulation has passed, and the basic problem that caused the crisis persists.

Two years ago, the collapse of Silicon Valley Bank sounded an alarm over vulnerabilities in the banking system. And briefly, it looked like a call to action: The Federal Reserve released a 102-page critique of its own failures in oversight; Congress kicked off hearings to examine banking legislation; and columnists (including this one) outlined ideas for preventing the next crisis.

Yet all of that talking has led to very little. Regulators tightened up on supervision, at least for a while, but there haven’t been any major new laws or regulations. And the basic problem at the heart of the regional banking crisis remains: The financial system as a whole relies heavily on runnable liabilities — namely, sources of funding, such as uninsured deposits, that can be yanked away abruptly.

As long as banks are financially healthy, runnability is not a big problem. Regulators say the current risk is relatively low. Silicon Valley Bank is back in business under new ownership. “Over the past year, vulnerabilities from funding risks have declined to a level in line with historical norms,” the Fed wrote last month in its semiannual Financial Stability Report.

But runnability becomes a source of vulnerability when insolvency threatens, as happened to Silicon Valley Bank. And troubles could resurface. For example, President Trump’s tariff war might cause an economic slowdown or recession, which could result in big losses for some banks through their loan portfolios.

It doesn’t help that regulators seem to be shifting their focus away from the problems that Silicon Valley Bank brought to the surface. An interagency plan from 2023 to increase bank capital requirements starting this July 1, which bank lobbyists opposed, is being scaled back and postponed. Last month, Treasury Secretary Scott Bessent said he wanted to “help get banks back into the business of lending” by reducing how much they needed to keep in liquid assets such as Treasuries. And this past week, The Financial Times reported that regulators were preparing to announce within months a reduction in the supplementary leverage ratio, a backstop safety measure adopted in 2014.

The financial system still relies heavily on runnable liabilities
A bank run occurs when depositors and other creditors of a bank start to worry that their money is unsafe or might become unsafe, and pull it out while they still can. (See: “It’s a Wonderful Life,” 1946.) Deposit insurance is supposed to relieve that worry, but it doesn’t cover all bank liabilities. At Silicon Valley Bank, to take an extreme case, 94 percent of deposits were uninsured. Some other sources of funding that banks rely on can also be snatched back abruptly, such as short-term borrowings from other banks.

Uninsured deposits in the banking system fell 15 percent in 2023, according to Fed data used in preparing the Financial Stability Report. That’s progress, but it still leaves the system heavily reliant on the flighty form of funding.

Looking at the financial system as a whole, including nonbanks such as money market mutual funds, the Fed calculates that runnable liabilities equaled about 80 percent of gross domestic product at the end of 2024. That included commercial paper and the securitized lending known as repurchase agreements. The ratio was about the same as before Silicon Valley Bank failed, although below the level on the eve of the financial crisis of 2007-9.

Potential solutions abound, but policy is slow to follow
What’s the answer? An extreme solution to runnability, which has been floated after every crisis going back to the 1930s, would be to turn banks into glorified mutual funds, in which every dollar deposited is securely backed by a dollar of safe and highly liquid assets. Laurence Kotlikoff, a Boston University economist, argues that all kinds of financial institutions, including insurers, should be reconstituted as debt-free mutual funds, entirely financed by equity.

There’s little support in Congress for what’s called “narrow banking,” though. Instead, the risk reduction that the Fed cited last month was mostly done voluntarily by bank executives who were trying to win back the confidence of investors. That includes the slight reduction in dependence on uninsured deposits.

There are “reciprocal” networks that allow banks to swap deposits with one another to get all the money under the Federal Deposit Insurance Corporation’s $250,000 insurance threshold. Also, the Fed is slowly improving its lending procedures so banks that need emergency collateralized loans can get them quickly, through either its discount window or the newer standing repo facility.

One problem is that memories in finance are short. Banks could go back to taking big chances in a few years, because the rules that enabled that risk-taking remain in place.

“I am uneasy that there hasn’t been a formal, regulatory structure put in place to consolidate the improvements in risk management that banks undertook on their own after Silicon Valley Bank,” Daniel Tarullo, a professor at Harvard Law School, told me. He was a governor of the Fed from 2009 to 2017 and led its supervision and regulation committee.

Policymakers acted “at the speed of light” to arrest the 2023 crisis but are taking years to figure out how to avoid a recurrence, Shayna Olesiuk, the director of banking policy at Better Markets, an advocacy group, wrote in a March report.

More can be done
Even before the 2023 crisis, the biggest U.S. bank holding companies were required to have a certain amount of “high-quality liquid assets” that could be quickly turned into cash to satisfy a surge in withdrawals. One obvious option — although it would go against Bessent’s thrust — would be to require a broader spectrum of banks to keep high-quality liquid assets on hand.

Stronger capital requirements, such as those that regulators sought in 2023, could also make banks safer. Capital is assets minus liabilities. If a bank’s capital cushion shrinks because its assets lose value (as happened to Silicon Valley Bank), regulators can order the bank to raise more money by selling shares.

The worst combination is too little liquidity and too little capital. Silicon Valley Bank, Signature Bank and First Republic Bank, which failed in rapid succession in 2023, “had too little usable liquidity relative to their runnable funding” along with “too little capital given the magnitude of their interest rate risk,” two Fed staff members, Shawn Kimble and Matthew Seay, wrote last year.

Those three banks and three others that failed or nearly failed in early 2023 all had a high concentration of customers in crypto, venture capital or both fields, Steven Kelly of Yale and Jonathan Rose of the Chicago Fed wrote in a working paper in March. In contrast, New York-based Amalgamated Bank also suffered from poor solvency and high dependence on uninsured deposits but avoided a run because its customers were mainly unions and nonprofits, which were less likely to bolt, Kelly and Rose wrote. That indicates that regulators need to pay attention to banks’ customers, not just their balance sheets.

Greg Baer, the chief executive of the Bank Policy Institute, which represents the nation’s leading banks, said in 2023 that people should not seize on the failure of Silicon Valley Bank “to fit their favorite policy pegs into the unusually shaped hole that appeared in March.”

I asked Baer for his latest thinking. He said he agreed with Bessent that overly strict liquidity rules could restrict banks’ ability to lend. He argued that improved functioning of the discount window and the standing repo facility gave banks plenty of access to liquidity when they needed it. And he said the problems of Silicon Valley Bank — the levels of depositor concentration and interest rate risk — were “unique to rare.”

The rarer, the better.