FT : German minister proposes tougher rules on Chinese foreign direct investment

German minister proposes tougher rules on Chinese foreign direct investment
Deputy chancellor urges stricter controls on overseas groups’ operations in critical sectors such as semiconductors and AI

Germany’s deputy chancellor has set out proposals to increase scrutiny of Chinese investments as Europe’s largest economy grapples with increased geopolitical risks surrounding its biggest trading partner.

The measures put forward by Robert Habeck, a Green who also serves as economy minister, would toughen restrictions on foreign direct investment in Germany in critical sectors such as semiconductors and artificial intelligence, and come just weeks after Berlin warned that Beijing was becoming “more repressive internally and more aggressive externally”.

The proposals, confirmed by a government official, come at a time of intense debate in Europe and the US about western economic relations with Beijing but risk stoking fresh tensions within chancellor Olaf Scholz’s bickering coalition as well as with business groups.

China has been criticised by western allies for its growing authoritarianism, sabre-rattling towards Taiwan and continued close ties with Russia despite the latter’s full-scale invasion of Ukraine last year.

The proposed legislation is being circulated across government departments for consultation and follows the publication last month of Berlin’s long-awaited China strategy, which said that the government was assessing the effectiveness of existing investment screening as part of a broader evaluation of ties.

Germany’s three ruling parties are already at loggerheads over a series of issues, from child support payments to industrial policy.

Scholz, a member of the Social Democrats (SPD), is less eager than his Green coalition partners to take steps that would dramatically curb economic ties with Beijing, fearing that they could damage political and trade relations with a country that was Germany’s largest trading partner for the seventh year running in 2022.

The chancellor has clashed with cabinet colleagues over issues such as Chinese conglomerate Cosco’s purchase of a stake in a Hamburg port terminal, which Green ministers, including Habeck, had wanted to block.

The new measures do not focus on outbound investment in China’s technology industries, which was recently subjected to new rules by the White House. Germany is part of EU discussions about how to respond to those measures. 

Businesses and investors from outside the EU are already subjected to a screening process when buying assets in the country, with the government holding the right to veto the acquisition if it believes it poses a threat to public order or national security.

But Habeck’s proposals would aim to simplify and consolidate an array of existing rules. 

Although they do not explicitly mention China, they include tighter restrictions on sectors where Chinese dominance or influence is seen as a threat to western economic security, such as semiconductors, AI and quantum computing, an official familiar with the proposals said.

Habeck is also seeking to crack down on what Berlin sees as China’s efforts to circumvent existing rules, such as the acquisition of intellectual property under licensing agreements, by expanding the definition of what types of investments are subject to screening.

Noah Barkin, an expert on Europe’s relations with China at US-based research firm Rhodium Group, said the proposals showed that Habeck’s economy ministry “wants to use the momentum from the strategy [on China] to adjust some policies — in part to limit the chancellery’s wriggle room”.

He expected to see the economy ministry, along with the Green-led foreign ministry, make “full use of the language in the China strategy to push their more hawkish agenda”. He added: “It will be interesting to see how Scholz reacts.”

The German official stressed that Germany “is and will remain an open investment location” that would continue to welcome international investors. They stressed, however, that FDI “must not jeopardise our goal of ensuring German and European economic security.”

FT : Can Germany fix its economy?

Can Germany fix its economy?
Ukraine war, higher rates and sluggish trade aggravate longstanding structural problems in EU powerhouse

Gloom has replaced relief as the overriding sentiment about Germany among economists. Experts are warning of another downturn in Europe’s largest economy, despite it emerging from last winter’s energy crisis in better shape than initially feared.

The longstanding structural problems, from an ageing population to crumbling infrastructure, have been aggravated by the war in Ukraine, rising interest rates and faltering global trade.

The IMF and OECD both expect Germany to be the worst-performing leading economy in the world this year. The country’s top-selling tabloid newspaper Bild Zeitung recently raised the alarm, declaring: “Help, our economy is crashing” as it appealed for chancellor Olaf Scholz to take action.

Why is Germany doing so badly?
The world’s fourth-largest economy stagnated in the three months to June, after shrinking in the previous two quarters — underperforming all its large rivals. 

A big reason is the global downturn in manufacturing, which hits Germany disproportionately hard as the sector contributes a fifth of its overall output — a similar level to Japan, but almost double that of the US, France and the UK. 

Oliver Holtemöller, head of macroeconomics at the Halle Institute for Economic Research, said the higher energy prices and trade tensions triggered by Russia’s full-scale invasion have had an acute impact on the sector. The higher cost of capital and shortage of skilled workers has also put it “under severe pressure”, he added.

German gas and electricity prices have retreated since last year. But they remain higher than in many non-European countries and production in Germany’s energy-intensive industrial sectors, such as chemicals, glass and paper, is down 17 per cent since the start of last year, suggesting permanent losses.


“The outlook for German industry is bleak,” said Franziska Palmas, senior economist at consultants Capital Economics.

Adding to the country’s worries, its traditional strength in carmaking is under threat, as its big brands are losing market share to cheaper Chinese rivals in the fast-growing electric vehicle sector. “The country’s major export goods — cars — are increasingly contested,” said Martin Wolburg, senior economist at Generali Investments Europe.

Analysts surveyed this month by Consensus Economics forecast German gross domestic product will shrink 0.35 per cent this year — a reversal from the slight growth they predicted three months ago. They also cut their 2024 growth forecast to 0.86 per cent, down from the 1.4 per cent they expected at the start of the year.

How long has it been underperforming?
Germany rebounded faster from the 2008 financial crisis than the rest of the eurozone, as global trade grew and southern members of the bloc grappled with banking and sovereign debt crises.

But the leader has since become the laggard. German GDP only snuck above pre-pandemic levels in June, while the eurozone was 2.6 per cent above that level.


“If you take the coronavirus crisis out, the underperformance started in 2017, so the structural issues have been there for a while now,” said Jörg Krämer, chief economist at German lender Commerzbank.

The country’s competitiveness has been steadily eroded by rising labour costs, high taxes, stifling bureaucracy and lack of digitisation in public services, experts said. This is highlighted by Germany’s slide down the IMD business school’s competitiveness rankings to 22nd out of 64 major countries — from being in the top 10 a decade ago.

“The advantage Germany built in the first 10 years of the euro has largely eroded as German unit labour costs rose faster than in the rest of the euro area and labour costs in Germany’s eastern European supply chains have converged with the west,” said Christian Schulz, deputy chief European economist at US bank Citi.

The ZEW Institute recently branded Germany “a high-tax country for investment”, pointing out its effective tax rate on company profits of 28.8 per cent was well above the EU average of 18.8 per cent last year. 

What is the government doing about it?
When Scholz was asked this in a TV interview on ZDF earlier this month, the chancellor said the government was setting “an incredible pace” with lots of “concretely imminent” projects to accelerate the switch to renewable energy and boost labour supply.

He also hailed how chipmakers Intel and Taiwan Semiconductor Manufacturing Company plan to build vast plants in Germany — although these were only secured thanks to about €15bn of subsidies.

Most economists think Berlin is heading in the right direction by trying to tackle structural issues rather than provide a short-term fiscal stimulus.

“The government is already addressing some key issues,” said Holger Schmieding, chief economist at German bank Berenberg, citing planned laws to streamline planning approval for priority investments and to attract more skilled workers from overseas.

But Scholz’s three-way ruling coalition has also been hampered by infighting, most recently when the Green family minister this month vetoed a proposal by the liberal finance minister Christian Lindner that was intended to spur growth by giving companies several billion euros a year in tax relief.

Is there any hope of a rebound?
Despite all the gloom, some economists think Germany will not keep underperforming for long, betting its cyclical difficulties will ease as energy prices moderate and exports to China recover.

“I would say the pessimism is overdone,” said Florian Hense, senior economist at German fund manager Union Investment, forecasting the country’s growth will be back to the eurozone average of 1.5 per cent by 2025.

Consumer spending may rebound as German wages rise more than 5 per cent, while inflation is forecast to halve to 3 per cent next year. “Rising real wages is one of the main reasons why we think there will only be a shallow recession,” said Commerzbank’s Krämer.

Some believe the current economic woes will force the government to tackle difficult labour market and supply-side reforms that could unlock a new era of outperformance, as it did in the 1990s. “The bigger the problems, the more likely there is to be real change in policy,” said Stefan Kooths, director at the Kiel Institute for the World Economy.

Others are more pessimistic. “The country needs an all-encompassing reform and investment plan,” said Carsten Brzeski, global head of macro at Dutch bank ING. “But we are far from getting it.”

FT : Gold miner Polymetal lines up buyers for its Russian assets

Gold miner Polymetal lines up buyers for its Russian assets
A sale would be a rare case of navigating a web of Kremlin restrictions and western sanctions

Polymetal, until recently one of the world’s most profitable gold miners, aims to sell its Russian business within the next six months, with a list of Russian miners and Chinese investors among the potential buyers. 

The plan follows the miner’s relocation of its domicile from Jersey to Kazakhstan this month as it looks to carve out its Russian business despite Moscow’s onerous exit restrictions and western sanctions. 

Vitaly Nesis, chief executive of Polymetal, said in an interview with the Financial Times that while a discount on the sale of its Russian assets would be “inevitable”, it would not be “catastrophic”.

“If we had remained in Jersey, the risks of losing the Russian business’ value would have been exceptionally high. And now I am optimistic that Polymetal International will be able to reap significant benefits from its sale,” he said.

If successful, Polymetal’s sale of its Russian assets will be a rare example of successful corporate manoeuvring under new regulations of asset sales from the Kremlin and western sanctions.

The gold miner, which has mining operations in Russia and Kazakhstan, is incorporated in Cyprus, but is owned by a holding entity that has now switched its domicile from Jersey in the UK’s Channel Islands to Kazakhstan, a country categorised by Moscow as “friendly”.

After Russia’s invasion of Ukraine, Moscow banned the sale of Russian strategic assets including gold mines owned by “unfriendly” countries, which includes the US, the EU, the UK, and their offshore jurisdictions, such as Jersey. It has been implementing an ever-growing set of criteria that limit sales involving all entities of “unfriendly” origin.

Asset sales require government approval — which frequently depends on having personal connections with the Kremlin rather than formal criteria — and are restricted to a maximum value of half the assets’ worth. The seller must also make a “voluntary” contribution to the Russian budget. 

Polymetal does not believe that Moscow will seize its assets, as it did with Danone and Carlsberg, where its Russian operations were nationalised. Both companies were negotiating exit deals with potential buyers, but there are no precedents of the state taking assets away from the owners of “friendly” origin, said Nesis.

“I think such a step does not fit into the current approach of the Russian authorities,” he said. 

The group has eight gold and silver mines in Russia, and two in Kazakhstan, with the group producing 764,000 ounces of gold equivalent in the first half of 2023, up 3 per cent from the previous year. Its revenues for the first six months rose by 25 per cent to $1,3mn, on the back of a sales recovery in Russia and higher metal prices.

Although Russia accounts for just over three-quarters of Polymetal’s production volumes, the Kazakh unit contributed more than half of the group’s net profit and provided all of the cash flow in 2022, due to the US sanctions against the Russian company in May. 

Nesis aims to finalise the sale within the next six months, but acknowledged that obtaining approval from Russia’s Federal Antimonopoly Service — a standard prewar procedure for most deals of such scale — could potentially slow the process.

Among the bidders for the Russian unit are Russian and Chinese companies, mostly from the mining industry, said Nesis.

The group intends to use the proceeds from the sale in Russia to enhance its mining operations in Kazakhstan, where it has been listed since 2013 as the first foreign company traded on the Astana Stock Exchange (AIX).

According to Nesis, the long history of operating in Kazakhstan and a “clear business purpose” there made the redomicile possible for Polymetal, while for many other big companies, it is not a viable choice. 

The relocation to Kazakhstan allows Polymetal’s Russian unit to pay out dividends. Last May, Russia’s president Vladimir Putin signed a decree prohibiting Russian subsidiaries of companies from paying dividends to shareholders in “unfriendly” countries.

Polymetal shares on the London Stock Exchange, where it listed in 2011, dropped 80 per cent following the invasion. They have been suspended, and trading will not resume as the group plans to delist from the LSE by the end of August. 

The LSE shareholders will have either to sell their shares or open an account at AIX and transfer them to Kazakhstan, said Nesis.

“We made every effort to keep the LSE listing. But it required the active participation of financial services providers, primarily registrars, who declined to co-operate due to sanction-related risks,” he said, adding: “This has been a painful process, especially for shareholders in the retail sector, we acknowledge that.”

FT : Italian rail group aims to launch high-speed links between European cities

Italian rail group aims to launch high-speed links between European cities
State-owned operator FS suggests a Brussels to Amsterdam route could be extended to Paris and Berlin

The Italian state-owned train operator is aiming to launch high-speed rail services between some of Europe’s biggest cities as it takes advantage of the liberalisation of the region’s network.

Ferrovie dello Stato Italiane (FS) wants a high-speed rail service that connects Brussels, Amsterdam, Paris and eventually Berlin to exploit EU rules forcing countries to allow competition on their high-speed networks.

Detailed plans are already under way to link Paris and Barcelona.

Carlo Palasciano Villamagna, chief international officer of FS, told the Financial Times the company was interested in offering cross-border services after new liberalisation measures came into force in June 2019.

The rules have paved the way for competition between private companies and state operators from neighbouring countries as rail groups are allowed to run trains on infrastructure across the region.

The move aims to expand the market, making trains a more competitive option to short-haul flying, in one of the most significant changes to the European rail industry in decades.

It comes as Eurostar, which connects the UK with the continent, also faces potential competition for the first time after the owner of National Express held talks with Spanish industrialists over launching a new cross-Channel service.

Trenitalia, the train operating arm of FS, has already expanded into some high-speed rail services in France and Spain, including linking Milan and Paris.

But Villamagna said the company was interested in offering new services in other parts of Europe, adding that Brussels to Amsterdam could be an attractive route.

“It’s currently under offer by only one company because they merged,” Villamagna said of the route.

Only Eurostar Group provides services on the route after its merger with Thalys to form a single company, controlled by SNCF, France’s state-owned train operator.

“It’s a very popular line,” Villamagna said of the Brussels to Amsterdam route. “We’re currently understanding how we could be possible partners or possible actors for that part of Europe.”

The study of the Brussels to Amsterdam market was running in parallel with plans to launch a Paris to Barcelona route, Villamagna said.

“Why not also continue from Paris to the east side — so Brussels to Amsterdam?” Villamagna asked. He added that the company could eventually operate a service to Berlin.

Alberto Mazzola, executive director of the Community of European Railways, a lobby group of mainly state-owned railways, said he expected greater competition on many routes.

There have been complaints that the rail shake-up has been slow, which Mazzola blamed on the coronavirus outbreak less than a year after liberalisation came into force.

“If we hadn’t had Covid, we would have seen even more competition today,” Mazzola said.

He suggested, however, that the lack of suitable infrastructure for high-speed rail services in Europe was also a big problem.

Networks were mostly focused on connecting places within one country, he added, with few high-speed rail lines between neighbouring states.

“The point that we have today is that we’re missing infrastructure. We have a lot of national networks. No one is connecting internationally.”

A report this year by consultants EY found that creating a comprehensive high-speed network to connect Europe’s biggest regions and cities would cost €550bn.

Villamagna said Trenitalia was planning to offer a higher standard of service than competitors in a market where operators are under pressure to distinguish themselves in a crowded arena.

Between Barcelona and Madrid, Trenitalia’s Iryo competes not only with AVE, the original service run by Renfe, Spain’s state-owned incumbent, but also with Ouigo, a budget brand of SNCF, and Avlo, Renfe’s budget brand.

Villamagna insisted that Trenitalia’s plans for a higher standard of service would make it complementary with rivals.

This, in turn, would help persuade passengers to switch from air to rail, rather than taking passengers from other rail companies.

WS : India Races Russia to Be First to Land on Moon’s South Pole

India Races Russia to Be First to Land on Moon’s South Pole
India’s lander is slated to touch down on the lunar south pole Wednesday, while Russia aims to land days earlier

NEW DELHI—India is in a race with Russia to become the first country to land a rover on the moon’s unexplored south pole, an achievement that would solidify its position as a major space power amid renewed global interest in lunar exploration.

India launched an unmanned spacecraft with a lander and rover in July. The Chandrayaan-3 mission, which means “moon craft” in Hindi, is India’s second bid to land on the moon. A landing attempt is scheduled for Wednesday, Aug. 23, to coincide with sunrise at the landing site, the Indian Space Research Organization, the country’s space agency, said.

If the lander is able to set down safely, it would be a moment of intense national pride.

“Chandrayaan-3 scripts a new chapter in India’s space odyssey. It soars high, elevating the dreams and ambitions of every Indian,” Prime Minister Narendra Modi said on X, the platform previously known as Twitter, after the launch.

But Russia might get there first. The country launched its Luna-25 lander on Aug. 11, its first mission to the moon in nearly 50 years, and is looking at a landing on Monday, Aug. 21, in the same challenging area. For Moscow, a return to the moon could signal its continued technological prowess in the face of sweeping global sanctions imposed in the wake of its invasion of Ukraine last year.

On Saturday, Russia’s state news agency reported that the Luna-25 faced an “abnormal situation” during a maneuver to enter a pre-landing orbit. “During the operation an emergency occurred on the space probe that did not allow it to perform the maneuver in accordance with the required parameters,” the country’s Roscosmos space agency said. The agency didn’t provide further details.

A successful moon landing for India would catapult it into an elite club of spacefaring nations. China became the third country to land there, after the U.S. and Russia, when it safely set down its Chang’e-4 probe on the far side of the moon in 2019.

The mission will showcase India’s “strong technical capabilities in the global space arena, and irrespective of its outcome, will reinforce India’s presence on the global map,” said Vishesh Rajaram, a managing partner at Speciale Invest, a technology-focused venture-capital firm with investments in Indian space startups.

India’s space activities are funded by a budget that is a fraction of what the U.S. or China can count on. In its latest budget, the country earmarked $1.5 billion for its Department of Space, which includes funding for ISRO. NASA’s budget stands at around $25 billion.

Ram Jakhu, professor of space law at Canada’s McGill University, says the Chandrayaan-3 will provide momentum to India’s space collaboration with other countries, including emerging economies that hope to develop their own space programs.

“Once you are successful, everyone wants to come to you,” said Jakhu. “Other nations would want to learn from India how to launch space missions at a modest cost.”

India’s travel time to the moon of about 40 days is longer than Russia’s because of the Chandrayaan-3’s heavier payload and more-limited fuel storage compared with the Luna-25. India sent its spacecraft on a route of loops around the Earth and moon to take advantage of gravity and economize on fuel.

In recent years, India’s space agency has begun earning revenue from launches carrying payloads for other countries. It accounts for only a small share of the commercial satellite launch market, which is dominated by a private U.S. firm, Elon Musk’s SpaceX. India has also been looking to boost its nascent private space industry, after opening up space activities to private firms in 2020.

Rajaram, the space investor, said India’s share in the global space economy is expected to grow to about 9% by 2030, from around 2% now. In November last year, Indian startup Skyroot Aerospace launched the country’s first privately built rocket.

The Indian and Russian moon missions are part of a flurry of lunar activities that are expected in coming years as space exploration increasingly splits into two camps.

India and many other nations have signed on to U.S.-backed principles for space exploration, while Russia plans to work with China on its plans for a lunar research station. U.S. law bars NASA from cooperating with China on space exploration.

NASA, the U.S. National Aeronautics and Space Administration, plans a human spaceflight around the moon in late 2024. Beijing is aiming for a crewed lunar landing before 2030.

“The moon is back on everyone’s agenda both as a location for a sustainable human presence in space, and as a proving ground for future missions,” said David Alexander, Rice University physics and astronomy professor and director of its space institute.

The lunar south pole, in particular, is an area of intense interest for space scientists, Alexander said, because of the presence of water ice in craters, which could potentially help support a future human settlement. NASA said in 2018 that its instrument carried aboard India’s first moon mission had helped confirm the presence of ice.

But landing safely in the area, which sees less sunlight than the moon’s equator, isn’t a given. The terrain is tricky, with boulders and vast craters, Alexander said. In June, the director of Russia’s space agency put the likelihood of success at 70%.

Israel and Japan also have tried and failed to land at the lunar south pole. India’s Chandrayaan-2 mission crashed during its 2019 attempted landing there, a failure that ISRO’s analysis attributed to a software error governing the lander’s speed.

S. Somnath, the Indian space agency’s chairman, said the mission is using updated software that will ensure that if one system fails, another will work. Chandrayaan-3 is also equipped with sturdier landing legs, a bigger fuel tank and more solar panels.

If the probe is able to land, the accompanying rover will run a series of experiments exploring the landscape and mineral reserves.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-Inside Trump’s decision to skip the GOP debate. Fox News leaned on former President Trump privately and publicly to join the debate. But all the while he had his own plan for counterprogramming.
-The prospect of a possible second presidential term for Donald Trump has many officials in Europe worried.
-A view of the outside of the Fox News building in Manhattan, showing a news ticker reading “President Trump” and red, white and blue signs.
-These voters share almost no political beliefs, but they agree on one thing: The US is failing as a nation.
-As legal bills pile up, Rudy Giuliani has repeatedly sought a financial lifeline from Donald Trump.
-Hurricane Hilary, Now a Category 3 Storm, is approaching Mexico and California. The storm was still expected to produce heavy rain and flooding despite weakening as it headed toward the coast.
-The last survivors of an Amazon tribe. Have been found. Now what? The last two isolated members of the Piripkura people are posing a tricky challenge for the authorities.
-Hawaiian Electric was warned of its system’s fragility before wildfire. The utility company knew it needed to upgrade its equipment but did not make changes that could have reduced risks of fires, energy experts said.
-Wildfires have prompted evacuations in Washington State and British Columbia, Canada.
-With TikTok and lawsuits, Gen Z takes on ‘Climate Change’. A growing number of young people are engaged in a movement to shape policy and sway elections. “We’re the last resort,” one young activist said.
-Inmates in a Wisconsin prison who have been confined mostly to their cells for months described poor conditions. Experts said staffing shortages were likely to blame.
-A Kansas newspaper is the talk of the town, and not just for getting raided.
The rare search of a newsroom has uncorked a debate in Marion, Kan.: What is a newspaper’s role, anyway?
-China’s economic growth has led to the demolition of many rural homes, and a burgeoning nostalgia.
-A defense agreement likely to deepen Chinese Rancor. Its signers, Japan, South Korea and the United States, see deterrence whereas China sees encirclement, and even provocation.
-Ceaseless war in Syria leaves lethal threats lurking underfoot. Even as the fighting in Syria has largely stalled, more than a decade of conflict has left behind an array of unexploded munitions like cluster bombs.
-How nursing homes failed to protect residents from Covid. A series of hurdles prevented the facilities from shielding older people. Experts are calling for reforms before the next virus arrives.

THE FINANCIAL TIMES
-A group of Silicon Valley’s biggest private tech companies are dusting off long-delayed plans to list their shares, with the upcoming initial public offering of chip designer Arm set to provide a new gauge for market sentiment. Grocery delivery group Instacart, software company Databricks and identity verification start-up Socure are among those considered candidates to launch stock market debuts by next year, according to people familiar with their thinking.
-Ahead of next week’s first Republican presidential debate in Milwaukee, Wisconsin, Florida governor Ron de Santis has continued to lose ground in national polls of the party’s primary voters and struggled to make big gains against the former president in crucial battlegrounds such as Iowa and New Hampshire.
-Goldman Sachs chief executive David Solomon is is contending with the most challenging period of his nearly five-year tenure as CEO, with the past 12 months punctuated by falling profits, sagging morale and unflattering press coverage — including a damaging story this month in New York Magazine that asked if he was “too big a jerk” to run the bank.
-China has launched military exercises around Taiwan, lashing out against the country’s vice-president and election frontrunner Lai Ching-te for visiting the US this week. The drills, which the People’s Liberation Army called a “serious warning against the provocation of ‘Taiwan independence’ forces colluding with external forces”, came after Lai returned on Friday from one of the most low-profile US visits by a top Taiwanese politician in recent years.
-Brussels would need to translate hundreds of thousands of pages of EU law into Basque, Galician and Catalan under a Spanish proposal that will add to the strains on Europe’s stretched translation service. Spain has asked the EU to add the three tongues to its list of 24 official languages as part of Pedro Sanchez’s efforts to woo smaller regional parties, whose support he needs to secure a fresh mandate as prime minister.
-For Ukrainians, however, engaged in an existential struggle for their independence against Russia’s war of ‘recolonization,’ Alexander Pushkin is a symbol of the Russian imperialism that has long denied Ukraine’s right to a separate national existence. Pushkin was a great poet, but also a poet of Russian imperialism, just as Rudyard Kipling was a great poet, but a poet of British imperialism.
-The strength of the US economy and the specter of persistent price pressures have fueled a big surge in borrowing costs on both sides of the Atlantic as investors rethink the trajectory for global interest rates.
-The global luxury travel market is projected to grow by 45 per cent over the next five years to $2T, according to market research cited by consultancy Deloitte in a recent report. Luxury travel has rebounded even faster from the pandemic than mid-market travel, as the economic slowdown has held back middle-class spending, according to analysts.
-The Women’s World Cup is set to have attracted 2B viewers on screens globally, with almost 2M tickets sold for the matches in Australia and New Zealand. The tournament had generated $570M, allowing it to break even, according to FIFA boss Gianni Infantino.
-Morocco’s King Mohammed VI’s prolonged absences abroad in the past year and his friendship with a flamboyant martial arts fighter and his two brothers had set tongues wagging and upset senior courtiers, concerned about the image of the monarchy in a country riven by inequality but where the sovereign is seen as a foundation of stability. “Since his return we’ve seen him almost daily on television,” said Omar Brouksy, a Moroccan political scientist and commentator. “He’s been inaugurating this and launching that and exercising his authority.”
-Authorities in Brazil have arrested top police commanders in the nation’s capital for alleged involvement in riots by radical supporters of former president Jair Bolsonaro who stormed government buildings at the start of the year.

NY POST
-Access to water should be predicated on “conversations about equity,” according to the Hawaii official under fire for delaying access to water during the Maui wildfires. M. Kaleo Manuel, former deputy director of the Hawaii Commission on Water Resource Management, waited for more than five hours to release water during the wildfires that devastated Maui, according to reports. In a livestream debate hosted by the University of Hawaii last year, Manuel described water as a sacred god. “Let water connect us and not divide us,” said Manuel, referring to water distribution on the island. “We can share it, but it requires true conversations about equity…How do we coexist with the resources we have?”
-Chefs and restaurant owners have joined local Chinatown residents to demand that the city abandon plans to build the world’s tallest jail in the heart of the neighborhood — saying it threatens to become a “death knell” for local businesses, Side Dish has learned. “The city needs to completely rethink the size and scale of the jail. We don’t want a repeat of Rikers Island. We want it small and controllable,” said Jan Lee, a third-generation local and co-founder of Neighbors United Below Canal.
-Lawyers for Sam Bankman-Fried on Friday rejected as “entirely inadequate” the government’s plan for letting the jailed founder of the collapsed FTX cryptocurrency exchange prepare for his October fraud trial. In a letter to US District Judge Lewis Kaplan in Manhattan, the lawyers said giving Bankman-Fried just two days a week, without a dedicated computer, to review the “extraordinary volume” of evidence violated his Sixth Amendment constitutional right to effective counsel and aid his defense.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Five experts, including Dario Gill, director of Research at IBM, discuss the opportunities and risks around artificial intelligence

Cover Story:
Five experts, including Dario Gill, director of Research at IBM, discuss the opportunities and risks around artificial intelligence—and the companies most likely to lead the way. Generative AI promises to democratize the power of large data sets, making it dramatically easier for people and businesses to find information, create content, and analyze data. And yet, AI isn’t magic, despite all appearances to the contrary. The technology is creating widespread worries about the misappropriation of personal information, the misuse of copyright-protected content, and the creation of false and misleading data. Some people even see AI as an existential risk to the future of life on Earth—a recent Time magazine cover asked whether AI will eventually lead to “The End of Humanity.”

Interview:
-No interview this week.

Tech Trader:
-Cisco shares look cheap. The networking equipment giant’s stock has been a laggard in 2023, with a 15% gain on the year, versus the Nasdaq Composite rally. The stock trades for less than 14 times forward earnings and under four times forward sales. And that for a company that offers a nearly 3% dividend yield and is aggressively buying back stock. Cisco sales crumbled in 2020, as the work-from-home trend crushed demand for enterprise hardware, while component shortages reduced the company’s ability to fulfill the orders it had. In 2021, as businesses started spending again, orders piled up—topping 30% growth for three straight quarters. Cisco continued to grapple with parts shortages, though, and its backlog ballooned. Over the past few quarters, the dynamic has reversed. The component shortages are gone, which and Cisco has sped up shipments, providing a boost to revenue.

The Trader:
-Yields are rising and stocks have real competition from bonds in a way they haven’t for a decade and a half. The yield on the 10-year U.S. Treasury note hit 4.25%, up 0.3 points since the start of August and near its highest since 2007. That’s a nice payout, especially with stocks appearing pricey. It’s a big reason the Dow Jones Industrial Average fell 2.2%, the S&P 500 lost 2.1%, and the Nasdaq Composite dropped 2.6% this past week. There are several forces behind the recent move higher in yields. Some are largely technical: U.S. Treasury issuance has been larger than normal this month, the Bank of Japan just allowed yields to drift higher, and the credit-ratings firm Fitch downgraded the U.S. sovereign rating on Aug. 1.
-Oil stocks have quietly been the market leaders this summer—and they should have the energy to keep the streak going the rest of the year. With technology stocks taking a break, the Energy Select Sector SPDR exchange-traded fund has been the best sector performer since the start of June, gaining 17% during that time. That’s well ahead of the second-place sectors, consumer discretionary and industrials, each up 12%. All three sector rallies reflect improving investor sentiment on the U.S. and global economy and the market pricing in peak benchmark interest rates. Mizuho Securities USA’s Nitin Kumar also has Pioneer as one of his top picks, and he recently upgraded producers Chevron, Matador Resources, and Permian Resources to Buy, while lowering refiners Marathon Petroleum, HF Sinclair, and Magnolia Oil & Gas to Neutral. “Although near-term refining margins are likely strong, risk/reward is skewed to the downside and we move to the sidelines,” Kumar wrote.

Features:
- Bond prices decline when yields rise. Yields have risen to levels not seen in years, giving patient investors the opportunity to bolster portfolios with bonds with the potential for both high income and capital gains. And the most aggressive Federal Reserve rate-hiking campaign in decades crushed the bond market in 2022, sending the iShares Core U.S. Aggregate Bond ETF down 13%. After rebounding earlier in the year, bonds have produced more losses in recent days as yields climbed sharply. Investors buy bonds for safe income, not double-digit losses. For retirees and those nearing retirement, the question is where in the wide world of fixed income should they invest? What’s the right duration? Short-term Treasuries—including 3- and 6-month T-bills—are sporting yields higher than 5.4%. That’s enticing. But if the Fed begins cutting rates in 2024, longer-term bonds will be the better investment.

Europe:
-The World Bank has warned of a “lost decade” for the global economy, and has forecast that growth for the remainder of the 2020s could hit a three-decade low. It cites an aging workforce, weaker investment, and lower productivity. The euro-area economy grew by 0.3% in the second quarter, narrowly avoiding a recession. The United Kingdom expanded by just 0.2% in the three months through June, according to data published on Aug. 11. By comparison, the U.S. economy grew by 0.6% in the quarter, according to the Organization for Economic Cooperation and Development, or OECD. China has even bigger problems than Europe. A deflating property bubble and a weak recovery from Covid-19-era lockdowns have left the economy struggling. Plus, there’s a whiff of deflation.

Emerging Markets:
- Argentina Devalued the Peso After Election. Its Bonds Look Attractive. Investors were rattled by upstart Congressman Javier Milei’s first-place finish in Sunday’s Argentinean presidential primary election, with 30% of the vote. Best described as a far right-populist with Trumpian rhetorical flourishes, Milei’s provocative campaign promises include “dollarizing” Argentina’s long-suffering economy, “burning down” the central bank, and legalizing the sale of bodily organs. But bearish investors overlook the bigger picture, says Alejo Czerwonko, chief investment officer for emerging markets Americas at UBS Global Wealth Management: Candidates from a more sober center-right party nearly matched Milei with 28%. The incumbent Peronists, whose policies have yielded inflation north of 100% annually and poverty rates near 50%, limped into third at 27%. “Almost 70% of the vote went against the current administration,” Czerwonko says. “Given the potential for political regime change, bond prices are more likely to go up than down.”

Commodities:
-United States Steel‘s days as an independent publicly traded company could be numbered. Its story holds some fascinating history as well as some important lessons for investors.
US Steel announced it was looking at strategic alternatives after receiving multiple bids for the company. One of the bids was from steel peer Cleveland-Cliffs. US Steel is in play and shares were trading down 3.8% to around $30 on Tuesday. The S&P 500 and Dow Jones Industrial Average were down 0.8% and almost 0.9%, respectively. It’s almost unthinkable, but US Steel could end up in the hands of private equity or be subsumed into a larger entity. The company has been around, and traded, since 1901 after John Pierpont Morgan himself created it by merging Andrew Carnegie’s steel company with several others. The new firm had a market value of more than $1B, the first billion-dollar corporation in America. Steel, which is essentially an alloy of iron and carbon, was the hot commodity, a better construction material for buildings and bridges. U.S. steel was dominant, shipping about eight million tons in 1901, roughly one-third of the global total.

Streetwise:
-This week, jack Hough discusses his interest in New Balance sneakers and some of its competitors from Deckers Outdoor and the Swiss brand On Holdings and Adidas and Crocs, of course, the focus is on how the related stocks are performing and what style cues are affecting sales and appeal. The inspiration for the article comes from the fact that Hough has decided to buy a new pair of sneakers, and that after years of wearing New Balance, he wants to try alternatives.

WSJ : Who Is the Mogul Bidding for U.S. Steel

Who Is the Mogul Bidding for U.S. Steel
James Bouchard grew up around steel and deal making. ‘We have the cash,’ he says of his $7.8 billion surprise bid.

James Bouchard’s career was built on steel and deals. He grew up outside of Chicago where his parents worked for a steel company, and his neighbor was a serial deal maker.

After amassing his own fortune through acquiring companies in the steel business and other industries, the 62-year-old investor has made a bold offer to buy United States Steel for about $7.8 billion.

“We have the cash,” he said. Bouchard said he has $10 billion set aside for the acquisition. He said the industrial conglomerate he leads, Esmark, is debt free and that he doesn’t intend to borrow money against it to buy U.S. Steel X 0.91%increase; green up pointing triangle.

Striking a deal for U.S. Steel, one of the four major producers of domestic steel, would vault Bouchard into the upper echelons of American manufacturing—alongside past capitalist titans J.P. Morgan and Andrew Carnegie, who established U.S. Steel in 1901. Since then, the company has supplied steel for cars, skyscrapers, railroads and factories during the country’s rapid industrialization during the 20th century.

U.S. Steel has struggled lately to keep up with some industry upstarts that have bigger profits, thanks to newer mills and more efficient operations. Mr. Bouchard said U.S. Steel’s turnaround should start with better customer service.

“If U.S. Steel wants to compete, we have to deliver a product in 24 hours,” he said.

U.S. Steel declined to comment on Bouchard’s claims about the company’s delivery performance.

Bouchard jumped into the competition to acquire the company Monday by offering to pay $35 in cash for every U.S. Steel share. The all-cash offer countered a cash-and-stock proposal revealed over the weekend by rival steel company Cleveland-Cliffs that it said is worth about $35 a share. U.S. Steel’s share price has shot up 36% over the past week.

Prior to those companies announcing their bids, U.S. Steel said it had received multiple offers for all or parts of the 122-year-old company. Its board has started a wide-ranging look at the strategic options.

“Jim, in particular, is a guy who can read the cards on the table and play accordingly,” said James V. Koch, a former Esmark board member and past president of Old Dominion University in Virginia.

Bouchard, the fifth of seven children in his family, was raised in a suburb west of Chicago. His parents both worked at Chicago-based Inland Steel. His mother wrote letters to Inland employees in the military during World War II. His father worked in sales and would later become a regional sales executive for the company.

The family’s neighbor was hard-charging entrepreneur Donald Kelly, one of the pioneers of leveraged buyouts starting in the 1970s. Bouchard said he grew up with Kelly’s children, who now are investors in Esmark. Kelly did business under the Esmark name and later sold the name to Bouchard for $125,000 for his own business ventures; Kelly invested $500,000 in the fledgling company.

“His advice to me: Don’t do anything with debt. And that was from the king of leveraged buyouts,” Bouchard said.

As CEO of Esmark, Bouchard has built a diverse portfolio of companies in real estate management, machinery, corporate jet leasing and energy drilling.

“I‘ve been extremely lucky,” he said. “All of my assets make money.”

His primary interest, though, is steel, where Esmark’s businesses are in distribution and coating sheet steel with tin for cans. He said he’s grown more interested in acquiring U.S. Steel as he’s watched the company struggle with operating its plants efficiently.

“I’m a steel guy,” said Bouchard.

His first jobs in the steel industry were in customer service at steel distributors in Chicago and at Inland Steel. He joined U.S. Steel in the late 1980s as a sales representative and advanced through a series of sales management positions.

He was promoted to a vice president for U.S. Steel’s European business, which is anchored by a mill in Slovakia that the company acquired in 2000. Bouchard was among a group of executives tapped to help undo the mill’s Soviet-style management and create sales and customer service capabilities to compete in the European steel market.

“After we turned the business around, I sat down and I said: ‘I can do this myself,’” he said.

He left U.S. Steel in 2003 after 15 years, with a goal of running his own steel businesses. He started acquiring independent steel distributors and processors.

Bouchard said owning his own businesses reinforced the importance of customer service, particularly delivering steel on time. Running mills efficiently and filling orders quickly, he said, has helped newer steelmakers, such as Nucor and Steel Dynamics, rapidly rise to the top of the industry.

Nucor and Steel Dynamics make their steel by melting scrap in electric arc furnaces, allowing them to produce steel faster, and at a lower cost than U.S. Steel and Cleveland-Cliffs, which melt iron ore in coal and gas-fueled blast furnaces. U.S. Steel acquired the Big River Steel mill in Arkansas in 2021 to gain a lower-cost operation with new equipment.

“They deliver on time,” Bouchard said. “Steel Dynamics and Nucor have kicked everybody’s ass.”

Bouchard sprang into action when Cleveland-Cliffs put in its offer for the company. He said the business overlap between Pittsburgh-based U.S. Steel and Cleveland-Cliffs, along with Cleveland-Cliffs’ need to pay down debt, would likely force the breakup of U.S. Steel. Individual steel mills and other assets would be sold, he said.

Cleveland-Cliffs has said its acquisition plan would receive regulatory approval and has strong support from the United Steelworkers union.

Bouchard said he won’t carve up the company. “The only reason I’m in the game is I’ll keep the company together and in Pittsburgh,” he said.

Bouchard faces long odds of succeeding. Other companies with deeper pockets could jump into the competition with higher offers than Mr. Bouchard’s. It is also unclear whether the U.S. Steel board will accept any of the offers.

Bouchard has jumped into long-shot deals before. In 2006, Esmark waged and won a proxy fight to gain control of Wheeling-Pittsburgh Steel in West Virginia.

Bouchard became its chief executive officer, but found Wheeling-Pittsburgh’s plants and equipment were in worse shape than he expected. He sold the company in 2008 to Russian steelmaker Severstal for $1.25 billion. It was sold again and most of its shops wound up permanently closed.

The quick flip of Wheeling-Pittsburgh and its subsequent demise led some steel industry executives to view Bouchard as more an opportunist than a corporate steward.

Bouchard quickly rebuilt Esmark’s steel business. He bought back the steel distributors and other businesses that had ended up in the Severstal purchase. He later picked up Wheeling-Pittsburgh’s tin-coating shop when its assets went up for auction. Esmark’s Ohio Coatings now supplies tin-coated sheet steel used to can food.