🌍 Three economic plot twists

$11.6B

That’s how much Amazon is paying to acquire satellite company Globalstar in a race to catch up to Starlink’s 10,000-strong satellite network.

While everyone was watching the war, three economic plot twists just dropped, starting with…

Xi Jinping has channelled his inner Dua Lipa to announce some pretty stringent ‘new rules’ — but rather than warn about toxic exes, Xi’s big new supply chain regime seemingly makes it illegal to break up with China.

Officially published last week, his 18 new points are a big deal because they…

Half the world is already trying to secure supply chains, so what’s the problem here?

The biggest issue — flagged in a remarkably blunt letter by the local European business chamber — is that these new rules are so vague: vagueness is a pretty common approach for the Party to preserve control, then blame officials if something goes wrong.

Yet terms here like “harm to supply chain security” are undefined, rattling execs who fear getting burnt for legitimate commercial decisions, or just complying with laws back home.

It’s all an attempt to counter the West’s ‘de-risking’ away from China, which was in turn a response to China flexing its bottlenecks on things like rare earths. And yet many investors already see these rules as vindication of that rush to de-risk in the first place: “we’ll punish you if you leave” seems like a preeeeetty good reason to leave, no?

Speaking of leaving…

Shares in French luxury group LVMH (Louis Vuitton Moët Hennessy) dropped another 4% on Monday — they’re now down ~25% this year already, in the firm’s worst start on record. Hermès is likewise down 15% and Kering (Gucci, Bottega Veneta, etc) is off by 8%.

Why? Unveiling some disappointing Q1 sales figures, LVMH executives cited a wartime ~50% drop in Middle East foot traffic as rattled tourists avoid the glitzy walls. But if that region accounts for ~6% of the group’s revenues, why the broader 25% share slump?

First, the entire luxury sector has been slowing post-2022 as consumers blow through their Covid savings and grapple with slower growth plus a higher cost of living.

But second, luxury tastes seem to be changing, too: in a massive market like China, for example, fewer folks are rocking foreign logos from head to toe, perhaps also reflecting today’s more nationalist mood plus broader disillusionment towards the West.

It’s all another example of a sector more exposed to geopolitics than you might think. 

And talking about thinking…

The International Monetary Fund is a harbinger of doom these days — if you see their acronym in the headlines, they ain’t calling to praise your government’s great work.

This time, it’s the IMF’s latest mid-year Global Economic Outlook, warning the Iran war and resulting energy shock have halted whatever momentum the world economy still had.

The Fund’s boffins have issued new forecasts to boot, contrasting between a…

And true to doomy form, chief economist Pierre-Olivier Gourinchas has just warned that this report might already now be outdated! “Every day that passes and every day that we have more disruption in energy, we are drifting closer towards the adverse scenario.”

This time, however, we don’t have the same tight labour and loose monetary cushions that got us through the 2022 energy crisis.

As the world shifts from party to bunker mode, some big bets might now be off.

First in China, Xi is going full ‘Hotel California’ as he shifts from attracting capital to trapping it. His predecessors had the luxury of betting China’s market would simply be too big to quit, but these new supply chain rules suggest maybe he’s not so sure, or maybe he’s just not fussed. Either way, it’s further proof he’s putting security over growth.

Second over in Europe, luxury tycoons are learning that their big bet on a rising global middle class isn’t so easy — as the rest of the world rises, folks won’t all aspire the same; and as the rest of the world splinters, old high-value looks could end up more of a liability.

Third, for the IMF, it’s reiterating the classic bet that an Iran war quickly delivers an energy shock that triggers an economic crisis — and yet here we are seven weeks in, and Brent is now back under $100, while the S&P500 is now back around pre-war levels.

Sound even smarter:

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Some eagle-eyed DC locals have spotted new work at China’s embassy this week, as the mission rings its walls with max-security razor wire. Why? One theory posits it could be related to the neighbouring Israeli embassy, in light of the protests and threats against Israeli missions globally. But… other neighbours like the missions of Singapore, Jordan, Ghana, and Bangladesh, are still raw-dogging their fencing.

Another theory suggests it’s a response to the strange recent incident of a young Japanese military officer climbing into China’s Tokyo embassy with a knife. But! That particular mission already had barbed wire fences…

A third theory stems from our own years in the trenches of diplomacy: maybe the embassy finance officer had to blow some surplus EOFY cash to avoid getting a slap on the wrist from the ambassador for failing to exactly balance the embassy’s budget?

Or… maybe it’s just another sign of our times, with embassies everywhere rethinking their security posture in a troubled world. If you know of any other examples, do write us!

Yesterday’s poll: Do you think the petrodollar will recover from the Iran war?

🥱 Yep, it'll return to its natural trendline (48%)
😨 Uh-oh, this time it's different (50%)
✍️ Other (write in!) 2%

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