WSJ : Australia to Boost Defense Spending Amid U.S.-China Tensions

Australia to Boost Defense Spending Amid U.S.-China Tensions
The government plans to invest an additional US$32 billion in defense over the next decade

SYDNEY—Australia is boosting its defense budget and rethinking its defense plans as strategic competition between the U.S. and China heats up in the Indo-Pacific region.

Australia’s government said Wednesday that it plans to invest an additional 50 billion Australian dollars, or roughly US$32 billion, in defense over the next decade, with defense funding expected to rise to 2.4% of gross domestic product by 2033-2034 compared with 2.1% in 2024-2025. Defense spending is projected to grow from about A$55 billion in 2024-2025 to about A$100 billion in 2033-2034.

The key U.S. ally also outlined plans to overhaul its military forces. The idea, officials said, is to deter any potential adversary’s attempts to project power through Australia’s northern approaches.

Officials said they want Australia’s military to be a more focused force that can address the country’s most significant strategic risks. That means Australia plans to develop a larger and more lethal navy, an army that can operate better in littoral environments, a better air force, as well as more cyber and space capabilities.

Immediate priorities, according to a new national defense strategy that was released Wednesday, include a plan to acquire nuclear-powered submarines through the trilateral AUKUS partnership with the U.S. and the U.K., enhance long-range strike and missile manufacturing, and strengthen key bases in the north of the country.

“China is improving its capabilities in all areas of warfare at a pace and scale not seen in the world for nearly a century,” according to Australia’s new defense strategy. “This is happening without transparency about its strategic purpose.”

China’s leaders have vowed to absorb Taiwan by force if necessary, and U.S. officials say the Chinese military has been instructed to be ready to invade the democratically self-ruled island by 2027. Washington, meanwhile, has sought to boost its network of alliances in the region to deter Beijing.

Australia has deepened its defense cooperation with the U.S. in recent years, and militaries from the two nations frequently train together and buy the same equipment. It recently joined with the U.S., Japan, and the Philippines in naval exercises in the disputed South China Sea.

At the same time, Australia’s left-leaning government under Prime Minister Anthony Albanese has sought to thaw diplomatic ties with China, its largest trading partner. High-level dialogue between Australia and China has resumed since Albanese won an election in 2022, and Beijing has recently moved to lift trade restrictions on Australian goods, including wine.

“While Australia and China have different values and political systems, a stable and constructive relationship is in the interest of both nations,” the new defense strategy said.

FT : ISS clashes with German blue-chips over boardroom independence

ISS clashes with German blue-chips over boardroom independence
Proxy adviser calls on investors to replace chairs of BASF and Munich Re, who previously served as chiefs of their groups

Influential shareholder adviser Institutional Shareholder Services has clashed with two of Germany’s biggest blue-chips over a lack of boardroom independence, recommending the chairs of BASF and Munich Re be replaced.

ISS’s position centres on a long-standing and controversial practice in Germany’s two-tier governance system: the fact that top executives often join a company’s supervisory board at the end of their operational careers. Munich Re chair Nikolaus von Bomhard and his BASF counterpart Kurt Bock were both previously the most senior operational executives at their respective groups.

In line with Germany’s Stock Corporation Act and its corporate governance code, both von Bomhard and Bock underwent a two-year cooling-off period before joining the supervisory boards. Von Bomhard was backed by 85 per cent of shareholders when first elected in 2019, while Bock received 67 per cent support in 2020. Both were supported by ISS.

It is unclear how many investors will adopt the new ISS recommendation, but should Bock receive fewer than 50 per cent of the votes at the annual general meeting on April 25, the world’s largest chemical company would lose its chief and chair at the same time. It has previously disclosed that Markus Kamieth will replace chief Martin Brudermüller this month.

Frankfurt-based asset manager Deka, which is a top 10 shareholder in Munich Re and a top 20 shareholder in BASF according to data from S&P Global, last year adopted a similar voting policy to ISS. Deka told the Financial Times that it would vote against Bock at BASF, but would support Munich Re’s von Bomhard because it made a case-by-case assessment for sitting chairs seeking re-election.

The dispute with ISS is the delayed consequence of a change in the proxy adviser’s voting guidelines two years ago, which has until now been largely unnoticed. The proxy adviser now has a blanket ban against former chief executives becoming chair, a position that goes well beyond the requirements of German law.

ISS, which was acquired by German stock exchange Deutsche Börse in 2021, declined to comment on the reason for its policy update or on its specific voting decisions.

BASF and Munich Re said their choice of chairs respected the two-year cooling-off period required by German rules.

BASF also said that ISS’s view was based on general principles and “makes no reference to [Bock’s] specific work as chairman of the supervisory board over the past four years”.

Munich Re said in a response to ISS’s voting recommendation published on its website that “we respectfully disagree with their recommendation and believe Mr von Bomhard continues to be independent” and that his re-election was “in the best interest of all shareholders”. It declined to comment further.

Another proxy adviser, Glass Lewis, has recommended clients support both Bock and von Bomhard. Frankfurt-based asset manager DWS and Union Investment told the FT they also planned to vote in favour of the two chairs.

FT : Wealthy investors weather the inflation storms

Wealthy investors weather the inflation storms
Despite rising prices around the globe, investments made by the world’s richest have grown faster — boosting their wealth

Inflationary shocks have reverberated around the globe over the past three years — but the world’s wealthy have largely weathered them, say private bankers and investment managers.

Despite a sustained period of higher outgoings — with headline annual inflation still at 3.5 per cent in the US and 2.4 per cent in the eurozone after hitting multi-decade highs two years ago — the world’s billionaires and ultra rich have grown wealthier, according to US media group Forbes.

Industry figures say the rich have shielded their wealth from inflation by investing in the tech-driven stock boom, which has outpaced the rise in the cost of living, and by making smart bets on private equity, debt and infrastructure that have delivered strong returns.

“Wealthy individuals and their families are sophisticated investors, like hedge funds, that have been part of the stock market rally,” says Hannes Hofmann, global head of the family office group at Citi Private Bank.

“They were affected by the cost of living crisis, but many of the big family offices that manage the wealth of the rich have invested wisely in stocks, bonds and private equity.”

The wealthy continued to spend despite inflation being higher for goods and services that are largely bought or used by the rich compared with broader consumer prices.


Forbes’ annual cost of living extremely well index (CLEWI) — which tracks spending on items such as opera tickets, exclusive school fees, and luxury cars — rose higher than US consumer prices last year.

The CLEWI climbed 4.9 per cent in 2023 — above the 3.4 per cent rise in US CPI in the same period — following increases of 7 per cent in 2022 and 10.1 per cent in 2021.

Yet this failed to halt the rise in total wealth among the world’s richest people. Forbes’ worldwide billionaire index, published in April, showed that the total wealth of the richest people around the globe had risen to a record $14.2tn in 2024 — a 14 per cent increase on the $12.2tn recorded at the same point in the previous year.

The richest 400 people in the US also saw their wealth jump significantly higher than inflation in 2023, with the average net worth of the Forbes 400 wealthiest Americans up 13 per cent, to $11.3bn, year on year.

“Ultra high net worth individuals are not that exposed to inflation as their portfolios are usually well diversified,” explains Alessandro Caironi, head of banking, lending & investment solutions at Deutsche Bank Private Bank. “They hold investments such as public and private equity and real estate that protect them.”

Rebecca Gooch, global head of insights at Deloitte Private, a division of the Big Four consultancy group, adds: “With inflation showing signs of moderation, it is no longer the number one worry for the wealthy. They are now more concerned about geopolitics [with wars in the Middle East and Ukraine] and global economic uncertainty.”


Still, despite the sharp slowing of inflation from peaks of 9.1 per cent in the US and 10.6 in the eurozone in 2022, it remains a threat to investment portfolios.

“We are facing the last hurdle in the killing of inflation, particularly in the US,” says Matthew Morgan, head of fixed income at Jupiter Asset Management. “The big question is how quickly will the Fed tame inflation.”

Morgan thinks the US Federal Reserve will probably pave the way to a soft landing for America and the world economy, but adds that there are risks of a crash in the event of increasing geopolitical instability.

“To what extent is the increase in inflation temporary?” asks John Stopford, head of multi-asset income at investment group Ninety One. “Is it a response to the pandemic? Or will there be a lasting impact?”

For wealthy investors, despite the receding threat of inflation, there is still a need to diversify, stresses John Roe, head of multi-asset funds at Legal & General Investment Management.

“Inflation can mislead people to think equity markets are doing better than they are. If inflation is rising at 3 or 4 per cent, then stocks must rise more than that or the real capital appreciation is flat.”


“Diversification absolutely matters,” agrees Mark Haefele, chief investment officer of UBS Global Wealth Management. “You need to diversify geographically and across asset classes.”

Yet, investment managers and strategists remain confident the rich can continue to expand their wealth as they buy assets in private markets that deliver strong returns despite higher inflation. They also expect public equity markets to carry on rising as they hit fresh highs and increase the value of portfolios.

“The changing macro environment has created new investment opportunities,” says Charles Jewkes, head of global wealth at Aviva Investors. “Private markets can be attractive in a higher interest rate and inflationary environment.”

Grace Peters, global head of investment strategy at JPMorgan Private Bank, adds: “We believe the rally in the US equity markets is sustainable, based on the improving fundamental economic picture globally. Over time, we think US equities should continue on their upward path to drive healthy returns.” 

FT : European banks will struggle to get much ‘strategic’ love

European banks will struggle to get much ‘strategic’ love
Banking federation is calling for a more consistent set of rules across the EU

Excessive bank regulation is for the birds, reckons the European Banking Federation. At least that is what an avian-themed cartoon on the report’s cover suggests. The trade body wants the EU to recognise it as a “strategic sector”, ensuring that European lenders remain globally competitive. This might ruffle some feathers.

Every company wants fewer restrictions on its operations. Banks no doubt would like to lighten the load of extra capital held against the various assets they have on their balance sheets. This can mean less of a payout — dividends and share buybacks — for their investors. But to be fair, this is not the sector’s immediate complaint.

The EBF is calling for a more consistent set of rules across the EU. Recent ad hoc efforts for bank windfall taxes at the country level, such as in Italy, to raise funds for depleted government coffers don’t help, for instance. Banks complain that local, politically driven measures aren’t assessed in terms of their competitive effects.

One illustration is how the market perceives Europe’s banks: not well. In January 2008 the market capitalisation of JPMorgan made up less than 18 per cent of that of the top ten European banks together. Today, JPMorgan’s value represents well over 90 per cent of the European leaders.


This isn’t just a matter of regulation, though. Investors will have correctly questioned whether European lenders were decent stewards of capital given the amount of equity they have raised since the financial crisis. Santander’s share count has increased 85 per cent; UniCredit by nearly 11 times. All had their reasons. But while JPMorgan had to rescue ailing institutions such as mortgage lender Washington Mutual, it could still reduce its share count since 2008 by 27 per cent.

Banks everywhere, including the powerful US lobby, moan that they are hobbled by burgeoning rules and regulation. True, the lack of a proper banking union is a genuine problem in Europe, hence the EBF’s appeal to legislators and not just watchdogs. The group points to the decline in the region’s share of global capital markets activity in Europe, from 18 to 10 per cent, since 2008. But the US had shed a similar chunk of share in that time.

This is understandable, if typical, lobbying to level the playing field with global peers. But it comes just as European bank profitability (and share price performance) has improved markedly, helped by the tailwind of higher interest rates. Dressing this up in strategic status, a non-existent designation with unclear benefits, just feels a little cuckoo.

>>> US After Hours Summary: UAL +5.8%, HWC +2.6% higher on earnings; ALVO +3.7%

After Hours Summary: UAL +5.8%, HWC +2.6% higher on earnings; ALVO +3.7% as FDA approves Selarsdi injection; JBHT -5.4% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: UAL +5.8%, HWC +2.6%, OMC +0.6%

Companies trading higher in after hours in reaction to news: ALVO +3.7% (FDA approves Selarsdi injection as a biosimilar to Stelara), MESO +3.4% (files for 5.8 mln ADS offering by selling shareholders), ALK +2.9% (in sympathy with UAL earnings), CDNA +2.2% (names new CEO), AAL +1.8% (in sympathy with UAL earnings), DAL +1.5% (in sympathy with UAL earnings), JBLU +1.2% (in sympathy with UAL earnings), TCRX +1.1% (commences $125 mln public offering; also provides clinical pipeline update), LUV +0.9% (in sympathy with UAL earnings), OMGA +0.4% (CFO to step down), BIP +0.2% (files for 170 mln limited partnership units by selling unitholder)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: JBHT -5.4%, GAU -1.4%, FULT -0.8%, IBKR -0.3% (also increases dividend by 150%)

Companies trading lower in after hours in reaction to news: APG -2.9% (commences 11 mln share offering), ITCI -1.7% (commences $500 mln stock offering; also files mixed shelf securities offering), TTWO -1.3% (5% workforce reduction as part of broader restructuring plan), RYAM -0.7% (ships first production of 2G bioethanol from its Tartas plant), UHT -0.5% (files $100 mln mixed shelf securities offering), ALG -0.3% (unionized workers to strike after failing to reach labor agreement), MEG -0.1% (3 mln share offering), TEVA -0.1% (FDA approves Selarsdi injection as a biosimilar to Stelara)

>>> US Close Dow +0.17% S&P -0.21% Nasdaq -0.12% Russell -0.42%

Closing Stock Market Summary
Stocks had a volatile session today. The S&P 500 settled 0.2% lower, the Nasdaq Composite ultimately logged a 0.1% decline, and the price-weighted Dow Jones Industrial Average eked out a 0.2% gain thanks to strength in its heaviest component, UnitedHealth (UNH 468.89, +23.26, +5.2%), after reporting earnings.

The S&P 500 and Nasdaq Composite traded close to their prior closing levels in the early going, showing relatively modest gains or losses. Choppiness increased, however, in the afternoon trade as participants reacted to commentary from Fed Chair Powell.

Mr. Powell didn't say anything too surprising and the market interpreted his remarks as corroborating the recent rate cut recalibrations. Chairman Powell said at a panel discussion that restrictive policy needs more time to work since recent data has not shown progress on the inflation front. There was also a Wall Street Journal article from Nick Timiraos indicating that Mr. Powell tempered rate cut expectations.

The Treasury market had a muted response to these developments. Yields were already elevated despite this morning's weaker-than-expected Housing Starts and Building Permits Report for March. The 2-yr note yield rose two basis points to 4.96% and the 10-yr note yield settled three basis points higher at 4.66%.

The jump in market rates contributed to an underlying negative bias in the market through most of the session. Decliners had a nearly 2-to-1 lead over advancers at both the NYSE and at the Nasdaq.

Negative responses to earnings news from Bank of America (BAC 34.68, -1.27, -3.5%) and other names also contributed to the overall downside bias. The SPDR S&P Bank ETF (KBE) declined 1.3%.

  • S&P 500:+5.9% YTD
  • Nasdaq Composite: +5.7% YTD
  • S&P Midcap 400: +2.6% YTD
  • Dow Jones Industrial Average: +0.3% YTD
  • Russell 2000: -2.9% YTD

Reviewing today's economic data:
  • March Housing Starts 1.321 mln (consensus 1.485 mln); Prior was revised to 1.549 mln from 1.521 mln; March Building Permits 1.458 mln (consensus 1.518 mln); Prior was revised to 1.523 mln from 1.518 mln
    • The key takeaway from the report is that it provided no signs of relief for a supply-constrained housing market. Single-unit starts were down by double-digit percentages in every region except the West (+1.3%); meanwhile, building permits -- a leading indicator -- for single-family units were down in every region, highlighted by a 5.3% decline in the South, which is the country's largest housing market.
  • March Industrial Production 0.4% (consensus 0.4%); Prior was revised to 0.4% from 0.1%; March Capacity Utilization 78.4% (consensus 78.6%); Prior was revised to 78.2% from 78.3%
    • The key takeaway from the report is that industrial production remained on a growth track in March, driven by gains in manufacturing output that one would expect to see in a growing economy.

Wednesday's economic calendar features:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
  • 10:30 ET: Weekly crude oil inventories (prior +5.84 mln)
  • 14:00 ET: April Beige Book
  • 16:00 ET: February Net Long-Term TIC Flows (prior $36.1 bln)