TheChek News Flow

The 2024 race for the White House reignites debate over EVs

The EV transition is running head on into polarizing politics.

Already this year, pricier electric vehicles got even more expensive for many potential buyers thanks to higher interest rates, which affect loan costs.

Now, anti-“woke” backlash and high-profile politics are increasingly making the suggestion of owning an EV a political cudgel. Or, as Ford Motor Chief Executive Officer Jim Farley recently lamented: “They have become a political football.”

President Biden’s support of the transition, through subsidizing manufacturing, extending tax credits for EVs and giving money for charging stations, has come under attack from Republican rivals seeking to challenge him for the White House next year.

As the Democrat talks about trying to protect automotive jobs and help the environment with green technology, they raise concerns about losing work and question whether the governments should subsidize them or mandate future zero-emission vehicle sales, as California has done.

Intensifying the debate is a continuing labor strike against the Detroit car companies by auto workers worried about whether they will have jobs in the new EV world.

The tensions have risen as Ford and other global automakers have spent billions of dollars designing and building EVs, a move that looked especially smart a year ago when they were caught off guard by the strong demand for their new offerings.

Now, they are pulling back those plans in the midst of a slowing pace of growth in demand.

This past week, General Motors said it would delay opening a large EV truck factory in Michigan by a year, citing a need “to better manage capital investments while aligning with evolving EV demand.”

The move followed an earlier announcement by Ford pushing back to late 2024 a target of building 600,000 EVs annually. The company has also temporarily cut one of the production shifts for its electric pickup and paused construction of a $3.5 billion battery plant in Michigan.

Even Elon Musk sounded worried Wednesday when he suggested that Tesla TSLA -3.69%decrease; red down pointing triangle was slowing work on a new factory in Mexico. It was a rare moment of caution from the CEO, an entrepreneur who is targeting the sale of 20 million electric vehicles by 2030 and has cheered on other automakers to follow his path to a renewable-fuel future.

“Tesla is an incredibly capable ship, but we need to make sure, like if the macroeconomic conditions are stormy, even the best ship is still going to have tough times,” Musk said. “The weaker ships will sink.”

The demographics of car ownership show the political wedge.

In the U.S., for every five Democrats owning an EV there are two Republicans, said Alexander Edwards, president of Strategic Vision, which surveys new-vehicle buyers.

His data finds that Democrats give priority to “environmentally friendly” when buying their cars while Republicans have other things they are looking for, such as performance and prestige.

A key part of Tesla’s success as an electric vehicle maker was focusing on marketing its cars beyond just those appealing to environmentally conscious consumers. Musk often said he wanted the Model S sedan to be the best car on the market that just happened to be electric and has heavily emphasized his vehicles’ performance and styling over the years. Others have tried to follow suit.

On the campaign trail, however, EVs don’t always sound so cool. The GOP presidential hopeful Vivek Ramaswamy, who is against subsidies, has drawn laughs as he suggests that EV buyers are motivated by “a psychological insecurity,” while former Vice President Mike Pence said during the second Republican presidential primary debate that Biden’s efforts “are driving American gasoline, automotive manufacturing, into the graveyard.”

Former President Donald Trump, the GOP front-runner, has fanned the flames against the transition, whether it is tapping into consumers’ concerns about the mile range of EVs or auto workers’ worries about losing their jobs because of the new technology.

In the battleground state of Michigan, which Trump carried in 2016 but lost in 2020, Biden is narrowly leading in a potential rematch, according to the research firm EPIC MRA’s August statewide survey of voters. Among the state’s United Auto Workers union members, Trump leads 46% to 43%. Bernie Porn, the pollster, said the slippage among union members was likely because of Biden’s support of EVs.

So, it wasn’t surprising that Trump and Biden showed up last month in the Detroit area shortly after the UAW began striking.

“I don’t get why Ford and GM, why these carmakers, aren’t fighting…to make cars that are going to sell, to make cars that are going to be able to go on long distances,” Trump said at a rally during which he predicted the EV policies would lead to “hundreds of thousands of American jobs” being lost.

Biden visited the UAW picket line, one of several trips he has taken to the region, including to last year’s Detroit auto show, where he touted his work to help EVs.

“The real question is whether we’ll lead or we’ll fall behind in the race to the future; or whether we’ll build these vehicles and the batteries that go in them here in the United States or rely on other countries,” Biden said while visiting a Ford factory early in his administration.

Underpinning the politics of EVs is an economic divide, made more stark by the rise of interest rates. Most EVs are more expensive than the average new vehicle—which sold for about $46,000 in September.

As new cars and trucks become more costly, the practical effect on buyers shows up in Strategic Vision’s survey: The median family household income of new-car buyers has risen to $122,000. That is a significant increase from around $90,000, where it had been at for a couple of decades until just recently. EV buyers are even better off, with a median household income of $186,000.

In some ways, the green car tensions are a return to the 2012 political season, when GM’s Chevrolet Volt became the embodiment of the Obama administration’s rescue of the Detroit auto industry in 2009 and efforts to promote electrified vehicles.

Former House Speaker Newt Gingrich, who unsuccessfully sought the Republican presidential nomination, said the problem with the “Obama car” was that one couldn’t put a gun rack in the plug-in hybrid vehicle.

Sales of the Volt disappointed, and Dan Akerson, then CEO of GM, was left fuming that the company hadn’t designed the sedan to become “a political punching bag.”

Shanghai raid comes as China takes an increasingly tough stance on foreign businesses

Chinese police have raided the Shanghai offices of GroupM, a media-investment group and unit of London-based WPP WPP -2.22%decrease; red down pointing triangle, and detained an advertising executive, said a person familiar with the matter.

Police questioned other local executives during the raid, including GroupM’s Chief Executive in China Patrick Xu, the person said.

Xu couldn’t be reached immediately for comment. Shanghai police didn’t respond to a comment request.

Media outlets including the Financial Times reported earlier on the raid and detention.

China has been taking an increasingly tough stance on foreign businesses, even as its leaders also call for more foreign investment to support a slowing economy.

This year, Chinese authorities have raided the offices of due-diligence firm Mintz Group, questioned the staff of U.S. consulting firm Bain & Co. and implemented strict new data rules. Police also raided the offices of expert-network consulting firm Capvision, which worked closely with foreign consulting firms in China.

Chinese authorities have barred some executives working for foreign firms from leaving the mainland. This week, Tokyo said that China formally arrested an executive from Japanese pharmaceutical firm Astellas Pharma, who had been detained since March.

Driving much of that is Chinese leader Xi Jinping and Beijing’s growing emphasis on national security. In July, China started enforcing an updated anti-espionage law that gives the state greater control over a range of digital activities.

These moves have damaged American businesses’ confidence in China, which is at its lowest level in decades. While many foreign companies continue business activities in the country, executives have also cited growing concerns over China’s opaque law and business environment.

It couldn’t immediately be learned why GroupM was raided and its executive detained, and whether the investigation has any links to national-security issues.

GroupM parent WPP is the world’s largest ad holding company, whose agencies include Ogilvy, Wunderman Thompson and VMLY&R. China is WPP’s fourth-biggest market according to the company’s 2022 annual report. WPP recently announced it would combine VMLY&R and Wunderman Thompson.

Gains for precious metal break its long-term correlation with US Treasuries

Gold prices have rallied sharply since the Hamas-Israel conflict broke out, further highlighting the divergence in its long-term relationship with US Treasuries as investors flee to the haven asset.

Prices of the precious metal have surged as much as 10 per cent to $1,996 per troy ounce, hitting a five-month high, after Hamas launched attacks on Israel a fortnight ago.

With the region at risk of tipping into wider conflict, investors have bought gold, which is regarded as a store of value during times of geopolitical and market uncertainty.

“It’s the geopolitical risk premium that has come in for gold,” said Nicky Shiels, metals strategist at MKS Pamp, a Swiss precious metals refiner and trader.

However, gold’s rise has also put further stress on its typical correlation with real yields — US bond yields adjusted for inflation — that has largely held since the 2008 financial crisis. Normally, higher yields on Treasuries push the price of gold lower by making the zero-yielding metal less attractive by comparison.

That relationship has broken during the huge rise in real yields over the past year, with gold having been supported by record central bank buying, as some countries aimed to reduce their reliance on the dollar after Washington weaponised its currency in sanctions against Russia.

Analysts said that gold was also likely to have benefited from the uncertainty in the Middle East because it added to the Federal Reserve’s caution on the future direction of US interest rates. On Thursday, Fed chair Jay Powell said the geopolitical tensions sparked by the Israel-Hamas war “pose important risks to global economic activity”.

The violence in the Middle East has reversed gold’s recent slide, as rising bond yields pushed the yellow metal to $1,820 per troy ounce.

Others argue that the speed of the bond market repricing is actually pushing investors into gold.

“The other part of the story is having yields increase so much. That has probably frightened people on the fragility of the markets,” said Ryan McIntyre, managing partner at Sprott Inc, a precious metals investor with more than $25bn in assets under management.

Marcus Garvey, head of commodities strategy at Macquarie, said that gold’s rally was also in part down to traders who had bet on the metal’s decline being forced to exit their positions. “A key aspect is that the starting point was that the market was quite short,” he said.

Global prices have also been buoyed by strong demand in China, reflected by the price in Shanghai trading at a notable premium to its equivalent in London. In September, it reached a record difference after China’s central bank imposed temporary curbs on gold imports in a bid to defend the renminbi.

However, some analysts are wondering whether support for gold prices is wider than an investor rush for safe places to park their cash.

“The surge in real yields this week really should have pulled the rug under gold,” said Adrian Ash, director of research at BullionVault, a precious metals marketplace. “The big question at the moment is who is holding up the price . . . I think it’s the central banks.”

A new government will have its work cut out to roll back the rightwing nationalist capture of the state

After Sunday’s Polish parliamentary elections, the victorious opposition leader Donald Tusk proclaimed: “This is the end of bad times . . . Poland won, democracy won.”

You could almost hear the sighs of relief across European capitals (apart from Budapest) when the Polish result came in. Still, the job is anything but complete. Will a Tusk-led government be able to reverse the capture of state institutions by the rightwing nationalist Law and Justice (PiS) party over the past eight years? And what are the implications for Europe?

I’m dividing this newsletter into four parts: the election campaign, voting patterns and result; the difficulties that will face the incoming government; the Polish economy; and the impact on Europe, including the outlook for hard-right and populist parties.

Worms and an unfair playing field

In the words of Timothy Garton Ash, a British historian and expert on central Europe, the opposition’s triumph showed that “even an unfair election can be won against the odds”.

As Jarosław Kuisz, author of the recently published The New Politics of Poland, wrote for the FT, Poland was awash in PiS propaganda during the election campaign. “The deluge exceeded all limits of decency,” he observed.

Among numerous examples I could cite from the PiS-controlled state media, let me give just one. In March, the public broadcaster TVP aired a news conference given by Bartosz Kownacki, a PiS legislator. It was accompanied by a news ticker that read: “The opposition’s proposals for Poles: worms instead of meat.”

This referred to the ludicrous, false allegation that Tusk’s Civic Platform party planned to limit meat consumption and make the famously pork-loving Poles eat insects.

In recent elections in Hungary and Turkey, the playing field was also far from level, and the countries’ illiberal and strongman rulers carried the day. But not in Poland — why?

Garton Ash writes:

This is undoubtedly true. But there was also a risk that many voters would see Tusk, 66, as a figure from a bygone era.

Tusk’s career dates to the glory days of the independent Solidarity trade union, which challenged communism, in the end successfully, in the 1980s. He served as Poland’s prime minister from 2007 to 2014, and then had a stint as president of the European Council, the body that groups heads of EU governments.

Tusk deserves credit for leading the opposition to victory in the face of slanderous accusations from PiS that he was a German stooge or agent.

Still, the fact remains that millions of Poles voted neither for Kaczyński’s PiS nor for Civic Coalition, the four-party electoral force led by Tusk’s Civic Platform.

Marta Prochwicz-Jazowska, writing for the German Marshall Fund of the US, puts it like this:

“The strong showing of smaller parties indicates a desire among Polish voters for genuinely new leadership.”

In this excellent summary for the Fondation Robert Schuman in Brussels, Corinne Deloy explains that in the elections for the Sejm, or lower house of parliament, Civic Coalition won just over 6.6mn votes. The two other opposition groups — the centrist Third Way alliance and the leftist Lewica party — won a combined vote of almost 5mn.

On the pro-government and rightwing side, Kaczyński’s electoral coalition won 7.6mn votes — but the extreme-right Confederation took just over 1.5mn.

In other words, more than 30 per cent of voters shunned the parties of both Kaczyński and Tusk. It is this split in the overall vote that explains why Tusk — assuming he becomes prime minister — will have to govern with what might prove to be an unwieldy coalition of Civic Coalition, the Third Way and Lewica.

As in past Polish elections, the opposition vote was concentrated in western zones of the country and in the major cities.

The PiS vote was highest in the less developed, more traditionally Catholic east and south-east, particularly in smaller towns and rural areas. Alicja Ptak provides a good overview, with charts, on the Notes From Poland site.

So, what lies ahead?

The first thing to keep in mind is that PiS must co-operate in an orderly, peaceful transfer of power to the opposition. Will that happen? Maciej Kisilowski of the Vienna-based Central European University outlines the reasons for concern.

Should PiS put up resistance, I imagine that the reaction from large parts of Polish society, not to mention the country’s allies abroad, would be one of unqualified disapproval, even outrage.

Let’s assume that the opposition will take office, though it may take until December. The main difficulty — set out in this piece by Raphael Minder, the FT’s Warsaw correspondent — will be that PiS appointees will still control large parts of the state apparatus.

These include the central bank, the upper levels of the judiciary, the state media, public administration and state-controlled segments of the economy.

Moreover, Andrzej Duda, the elected head of state, is a PiS-aligned politician. Up to the end of his second term in 2025, Duda will have the power to block legislation put forward by the new government, because it will lack sufficient votes in parliament to overturn any presidential vetoes.

Finally, although the new coalition will have a strong interest in avoiding internal disputes, one can expect friction to emerge over time among the ruling parties on economic policy, the welfare state, the role of the Catholic church and abortion.

Such differences are likely to come to the fore as Poland gears up for next year’s European parliament elections, as well as a round of local elections that the PiS government controversially delayed from this year.

All that said, the outlook is brighter on other fronts. The EU, with which PiS clashed over the rule of law, will surely look with favour on the new government’s efforts to restore judicial independence.

Because of Duda’s role, and because PiS packed the courts with its supporters, the process won’t be straightforward. But in principle a change of government ought to unlock tens of billions of euros for Poland from the EU’s post-pandemic recovery funds and from the regular EU budget, as Leszek Kąsek and Rafał Benecki write for ING bank.

Moreover, the positive market reaction to the election result suggests that international investors will look more kindly on Poland.

It won’t all be plain sailing. A core element of PiS’s electoral appeal was its generous welfare programmes, especially expanded child benefit support. But some economists think these measures were to the detriment of useful long-term investment.

Hanna Cichy, head of economic research at Polityka Insight, says:

As regards the international scene, I expect Poland under a new government to return to its stance of strong wartime support for Ukraine, which PiS diluted in recent months, doubtless for electoral reasons.

In terms of Ukraine’s EU membership bid, however, it may prove hard for the new government to execute a complete retreat from the position, mapped out by PiS, of fierce defence of the interests of Polish farmers.

Under a new government, Poland may also not fall wholly in line with the EU on issues such as migration and asylum reform.

On the whole, though, the opposition’s electoral victory leaves Hungary under its illiberal premier Viktor Orbán more isolated in the EU in its quarrels with Brussels and western European governments over Ukraine, the rule of law and other matters.

Orbán can count on some sympathy from Robert Fico, Slovakia’s newly elected prime minister — but I’m not convinced Fico will rock the boat with the EU as much as Orbán may be hoping.

Lastly, we should think twice before concluding that the Polish election result marks a turning of the tide for hard-right and populist parties in Europe.

Each country moves to its own political rhythms and in accordance with its own electoral cycles. To take just one example, the hard right is still setting the pace in Austria, benefiting from being in opposition, and is well placed to come top in next year’s elections there.

In Europe, the struggle between moderate parties and more extreme and unconventional forces goes on.

Plus, media rights gloom, the WNBA super team era

Executives have been fretting this week about the outlook for broadcast rights as big wigs from sports, media and finance gathered in London for two big confabs: Due Diligence Live and Leaders Week.

The current climate suggests some ill winds are blowing. On Monday, Serie A clubs once again delayed a decision on whether to accept bids from Sky and DAZN for the domestic broadcast rights to Italian football. We hear the combined offer on the table is around €900mn a season - that’s lower than the deal they have now. A day later, the auction for the domestic rights to Ligue 1 collapsed, with no bidder hitting the reserve price set by the French football league operator.

Bain Capital veteran Steve Pagliuca, owner of Serie A side Atalanta, conceded that times were likely to prove tough in the short-term as the industry makes the switch from its traditional linear broadcast model to a more complex (and potentially more profitable) streaming-based service. “Winter is coming on media rights for the next three to four years,” he said at Leaders.

Few investors are more exposed to European sports media rights than CVC Capital Partners, which put money into French and Spanish football broadcasting during the pandemic. Speaking at Due Diligence Live, Nick Clarry — CVC’s point person on sports — said: “We’re in a transition from a pay TV model to a streaming model. And as with any transition there’s real turbulence.”

Investors and team owners will be watching what happens closely. Premier League rights are next on the block, with the tender process kicking off earlier this week. The Bundesliga is set to follow in Q1 next year. With these deals typically lasting at least three years, the implications for football finance are huge.

This week we’re looking at whether the long-running saga that is the sale of Manchester United is finally reaching a conclusion, plus we ask what the future holds for the WNBA after a record-breaking season came to a dramatic climax. Do read on — Josh Noble, sports editor

For his 70th birthday, Sir Jim Ratcliffe received video messages from some Manchester United legends, including David Beckham and Sir Alex Ferguson. The British chemicals billionaire turned 71 this week, but his next big present from the club isn’t quite ready: a seat on the board.

After a year of rumour, speculation and outright nonsense, the “sale” of United, the most famous club in football, is edging closer to an ending as we outlined in our recent update. Last weekend United’s Qatari suitor Sheikh Jassim bin-Hamad al-Thani signalled that he was pulling out of the running, with someone close to his bid blaming the Glazer family’s “fanciful” valuation.

It emerged soon after that Ineos founder Ratcliffe was nearing a deal to take a 25 per cent stake in the club, giving it an enterprise valuation somewhere between $6bn and $6.5bn — by far the highest ever for a football team.

If approved by the board, Ratcliffe’s arrival would be followed quickly by a capital raise to bring new money into the club. Ratcliffe and Ineos sporting director Sir David Brailsford would then take up two seats on a new committee to oversee the football operations, alongside current executive chair Joel Glazer.

Such an outcome offers something for almost everyone. Ratcliffe gets to sail into his childhood club and lead the effort to revive its fortunes. The Glazers get to stay in control of their lucrative asset while taking out a nice lump sum. They can ride the wave if Ratcliffe is successful, and have someone else to blame if he isn’t. Fans, though clearly divided on the idea, at least have the prospect of witnessing some change.

The people that may be wondering what’s in it for them are those holding New York-listed shares in United. The stock traded at around $13 before the Glazers announced their “strategic review” almost a year ago. In February, amid fevered speculation about a monster bid from Qatar, it shot up as high as almost $27 a share.

There have been some ups and downs since (remember Rio Ferdinand’s train station video message?), but the latest news on Ratcliffe’s prospective entry has weighed on the stock price, which is down more than 10 per cent this week. At $17.50, it is now at its lowest since the review was announced.

Despite Ratcliffe’s high valuation, there are many unanswered questions about the mechanics of his offer. Investors positioning for a full buyout look set to for major disappointment, while the prospect of a further share sale could mean more dilution to come. With United’s commercial prospects not closely tied to events on the pitch, minority investors may well shrug at news of a sporting shake-up.

All this has been made possible by the nature of US takeover law, which appears to demand very little of a seller — at least that’s the case when the controlling shareholders have over 90 per cent of the voting rights. But those who bought shares would have known that all along.

Wednesday night. Game four of the WNBA Finals at the Barclays Center in Brooklyn. Eight seconds remaining on the clock. The New York Liberty, playing in their first finals in over two decades, were down by just one point with a chance to force a deciding game 5 against defending champions, the Las Vegas Aces.

An inbound pass by the Liberty’s Sabrina Ionescu, to league MVP Breanna Stewart. Bogged down by the Aces defence, Stewart lobbed the ball around the key, where point guard Courtney Vandersloot pulled back for a 3-point attempt. No go. The buzzer sounds. The Aces win, the first back-to-back WNBA champions in 21 years.

It was an epic conclusion to a WNBA season that had been buzzing about a potential superteam showdown between the Aces and Liberty, two franchises that exemplify the modern game. The Aces, which originated in Utah in the 1990s, have been relocated under different owners until ending up in Vegas in 2018, and purchased by American football scion Mark Davis in 2021. The Liberty were the sister project of New York Knicks owner Jim Dolan from the league’s inception until 2019, when Joe and Clara Wu Tsai bought the team and moved it to Brooklyn.

Both squads have been lavished with new training facilities, top talent, and champion coaches. In short, they are exemplars of a new wave of women’s sports owners, who have made splashy investments to not only foster women’s pro hoops but to imagine a different, more egalitarian future for the sport.

Wu Tsai, the Liberty owner, met with Scoreboard this week to discuss this new era, particularly at a time when women’s football has been a recipient for record-setting expansion fees and valuations. The full interview is worth a read here.

While this year’s championships didn’t result in Wu Tsai’s ultimate goal — the first basketball trophy, for any pro hoops team in New York City, in half a century — the results may still be a boon for the industry. Sunday’s Game 3 in Brooklyn recorded the highest ever attendance in the league’s nearly three-decade history. Television ratings were up 36 per cent over last year, and was the most-watched finals in two decades, according to ESPN. 

Those figures come as the league approaches negotiations for its next media rights contract — current terms with Disney’s ESPN expire in 2025. The league’s growth in popularity has outpaced the value of the current terms, so much so that the WNBA signed a three-year, $39mn deal with Scripps’ Ion cable channel for a package of Friday night games to infuse the league with more cash. 

It’s no secret that live sports are the cornerstone of the cable industry, and pro leagues across the world have been hammering out eye-popping new contracts in recent years as streamers and broadcast companies look for a piece of the pie. The WNBA is by no means yet as popular as the NFL, which boasts tens of millions of viewers each week (and notched an 11-year, $110bn rights package to boot). 

But this year’s viewership and attendance should — emphasis on should — augur a more competitive package even as media companies have hit the ceiling on other live sports.

‘Cognitive-dissonance reduction’ requires vilifying the victim to uphold one’s prejudices.

You might think that an atrocity like Hamas’s Oct. 7 massacre in Israel would lead opponents of the Jewish state to temper their attacks. Instead, from college campuses to mainstream media outlets, elite left-wing circles have responded to the terror group’s barbarism by intensifying their denunciations of Israel. That may seem counterintuitive, but it’s typical. The worst demonization of the Jewish state has typically followed the worst atrocities against it.

Recall the Palestinian suicide-bombing campaign in the early 2000s. Then, as now, many in the West responded to the carnage by criticizing the Jews. International nongovernmental organizations resurrected the Soviet-era claim that Israel is an “apartheid” state. The United Nations joined the chorus and in 2001 met for a global conference “against racism, racial discrimination, xenophobia and related intolerance” in Durban, South Africa. Denunciation of Israel dominated the agenda.

Fast-forward two decades and Jews experienced the deadliest attack since the Holocaust. In response, many in the West have accused Israel of being a genocidal nation. The Washington Post’s Karen Attiah wrote on Oct. 13 that the U.S. “cannot stand by as Israeli officials engage in genocidal language and describe genocidal intent against Palestinians for the actions of Hamas.” England’s Guardian published at least three opinion pieces this week warning the same. Hundreds of international-law scholars from around the world signed a statement reporting that they’d found signs in Israel that “warn of a potential genocide in Gaza.”

One such “sign” is the Oct. 9 statement by Israel’s Defense Minister, Yoav Gallant, that Israel is “fighting human animals” Mr. Gallant was speaking about Hamas, not the Palestinian people, and the Israel Defense Forces have deliberately attempted to minimize damage to civilians in Gaza.

In one respect, this response is transparent projection. Hamas’s charter explicitly calls for the destruction of Jews and Israel. By kidnapping, raping and slaughtering innocent civilians, the terrorist group gives every indication that it believes what it says. Yet its sympathizers in the West aren’t merely projecting. Their behavior is an example of cognitive-dissonance reduction, the process by which people reconcile new information that contradicts their firmly held priors. The result is an ostensibly coherent system of thought.

Western activists for Palestinians are dedicated to two nearly theological precepts: that Israel is evil, and that no Palestinian action is ever connected to any Palestinian outcome. Each precept is grounded in longstanding—and borderline racist—conceptions of Jews and Arabs.

This cognitive trap expresses itself in how Israel’s opponents in the West speak about the conflict with the Palestinians. Concern that “time is running out” for reaching a two-state solution never leads to calls for the Palestinians to hurry up and accept a negotiated compromise. They ignore that the Palestinians rejected statehood and peace in 2000, 2001, 2008 and 2014. They ignore that Hamas’s belligerence is the cause of Israel’s blockade of Gaza, a defensive measure by a nation under assault.

Hamas’s gruesome attack poses a threat to this worldview, and the only way to resolve it is by heightening Israel’s imagined malevolence. The terrorist atrocities don’t trigger a recoiling from the cause in whose name they were carried out; they lead to an even greater revulsion at the victim.

This was the playbook 20 years ago when Palestinian terror groups sent young men and women to blow themselves up in Israeli buses, restaurants and cafes—immediately after they rejected offers of an independent Palestinian state, including the Gaza Strip and more than 90% of the West Bank, with East Jerusalem as its capital. The only way to make sense of the violence was to imagine an Israel even worse than what was already believed.

The Oct. 7 pogrom raised the rhetorical stakes. If the only thing that can explain a Palestinian action is Israeli evil, then Israel’s opponents have to imagine a level of Jewish evil commensurate with what Hamas did—shooting children in front of their parents, setting houses on fire with residents inside, raping women, beheading innocent people, mutilating bodies.

When it is forbidden to criticize murderers or the society that created them, all that is left is to defame the victims. The accusation that Israel is committing genocide the week after Hamas’s massacre is entirely predictable. It tells us nothing about Israel and much about its enemies.

Mr. Mor is a lecturer at Reichman University in Herzliya, Israel.

US central bank says Middle East conflict and war in Ukraine threaten ‘spillovers’ to markets

Escalating geopolitical tensions pose a threat to the global financial system amid heightened risks of higher inflation and slower growth, the Federal Reserve warned on Friday.

In its latest twice yearly Financial Stability Report, the US central bank flagged the potential for “broad adverse spillovers to global markets” in the event that the Middle East conflict and the war in Ukraine intensify or stresses emerge elsewhere.

“Escalation of these conflicts or a worsening in other geopolitical tensions could reduce economic activity and boost inflation worldwide, particularly in the event of prolonged disruptions to supply chains and interruptions in production,” the report said.

It added: “The global financial system could be affected by a pullback from risk-taking, declines in asset prices, and losses for exposed businesses and investors, including those in the US.”

The report — which stressed that the banking system on the whole remains “sound” and consumers and businesses have so far proven resilient in the face of higher interest rates — comes as Tel Aviv prepares for an expected ground offensive into Gaza following the attack on Israel by Hamas militants earlier this month. 

Jay Powell, the Fed chair, warned on Thursday that geopolitical tensions “pose important risks to global economic activity” and carry “highly uncertain” implications.

The Fed’s latest report also follows a sharp rise in global borrowing costs as financial markets have rapidly adjusted to reflect expectations that a resilient US economy is likely to keep the Fed’s policy rate at elevated levels for a sustained period of time.

Powell on Thursday suggested that an increased focus on the US debt burden may also be playing a role. According to figures from the Treasury department on Friday, the federal deficit has risen to $1.7tn, up from $1.37tn in 2022.

Borrowing costs globally have surged in recent weeks as Treasury yields of all maturities have risen sharply. The benchmark 10-year bond is now trading close to 5 per cent for the first time since 2007, while two-year yields hover at a 17-year high.

Since its previous report in May, the Fed found that Treasury market liquidity on the whole remained below historical levels, signalling that market participants are being “particularly cautious”. While businesses and households have digested higher interest rates with relative ease, the central bank noted that certain risky borrowers are beginning to feel more substantive strains.

The speed and magnitude of the recent rise in interest rates have stoked fears of brewing financial instability, with a top IMF official recently telling the Financial Times that there was now “heightened risk” of some kind of fallout.

In the event of inflation persisting unexpectedly, prompting central banks to have to raise rates further, the Fed warned of not only increased market volatility but also a “significant economic slowdown” as credit dries up and vulnerable households and businesses are forced to retrench.

A slowdown of that magnitude could pose a threat to the commercial real estate sector in particular, potentially leading to “significant losses for a range of financial institutions with sizeable exposures, including some regional and community banks and insurance companies”. 

Eventually, that could prompt certain lenders to pull back further, which “would further weigh on economic activity”, the report said. 

JPMorgan Chase chief executive Jamie Dimon last week warned that the current moment may be “the most dangerous time the world has seen in decades”. 

“Geopolitics, I think, is just an extraordinary issue we have to deal with,” he said. 

Banks have been cheered by losses and delinquencies so far not rising to elevated levels since the Fed started to raise its benchmark interest rate in its fight against inflation — a resiliency the central bank noted in its report.

However, Goldman Sachs chief executive David Solomon warned this week that “over the next two to four quarters, the impact of that tightening will be more evident and will create slowdowns in some areas”. 

“I am hearing, as I interact with CEOs, particularly around consumer businesses, some softness, particularly in the last eight weeks in certain consumer behaviours,” he said.