Daily Brief – Zeitenwende

Zeitendwende

This is how German politicians describe Germany’s great turning point in its defence policy since the time of the invasion of Ukraine. Without any sense of irony (which is of course best steered clear of in German), the decision has been made to upgrade Germany’s drone capability by investing EUR 536 million in two drone start ups – Helsing and Stark Defence. This is the first stage of a potential EUR 4.3 billion drone commitment. Stark’s drone named Virtus missed every target in 4 separate tests. Helsing’s HX-2 has managed a 36% hit rate in real combat in Ukraine. Back to the irony: as we all know POTUS has called on Europe to increase and upgrade its defence capabilities, but Stark is mainly backed by Peter Thiel’s Founders Fund, Sequoia Capital and In-Q-Tel the venture capital arm of the CIA. In other words Europe is supposed to be self sufficient but instead of backing proven capabilities from for example Rheinmetall, Germany’s largest defence contractor, the EU has gone for US backed startups and unproven tech.

GBP/EUR 1.1451.

Oil

Given the supply disruption that would ensue should the increasingly erratic POTUS mood music on Iran escalate to an all-out attack, unsurprisingly, oil prices are reflecting investor worries and are trading on 7 month highs. Iran it should be remembered is the 3^rd largest crude producer in OPEC but it is the risk to that supply disruption spreading across the wider Gulf region that is causing the disquiet.

Brent USD 71.01.

City of London

Just 3 years ago in that post pandemic what just happened world, newspapers and talking head pundits declared the decline of the City of London due to changes in working practices led by the WFH wave. At the end of the noughties office space in the City stood at 5.3 million square feet. Reading this week about how Microsoft are in search of 250,000 sf of new space somewhere between Paddington and Canary Wharf plus Lockton the US insurer being about to ink a deal for 200,000 sf in Fenchurch Street, we looked at what the figures show for the past 5 years in terms of both new City of London office space and also predicted vacancy rates. The answers are respectively an increase of 12% and zero by 2028 according to Knight Frank. Of course, new office space is only one yardstick and we appreciate that the City of London has seen an influx of new and non traditional businesses in the past years-think tech, marketing and not to mention evening entertainment- but those narrower roads and much wider new pavements do feel busier than ever.

GBP/USD 1.3500.

Emerging Markets

So far this year the MSCI Emerging Markets Index is up 13% with standout performance from South Korea’s iShares MSCI ETF up 43% and Peru’s iShares ETF up 25%. The reasons for the rally across Emerging Markets are as follows: 1. When USD weakens EMs do well. 2. Investors are diversifying away fro US tech and the Magnificent Seven. 3. The AI boom supports SE Asian chip makers. 4. The rises in commodity markets similarly benefit countries such as Brazil and Peru. 

EUR/USD 1.1790.

Livin On A Prayer

This day in 1987 American stadium rock band Bon Jovi went to Number 1 with this song. Frontman Jon Bon Jovi apart from founding the band is multi-talented with accreditations as an actor, songwriter, and guitarist as well as being a singer. Also known for being a philanthropist he was additionally praised by police and municipal authorities in 2024 for talking a woman down from jumping off a bridge in Nashville Tennessee during a break from filming – maybe by singing her this song?

Once upon a time, not so long ago

Tommy used to work on the docks, union’s been on strike
He’s down on his luck, it’s tough, so tough
Gina works the diner all day, working for her man
She brings home her pay, for love, mmm, for love

She says, “We’ve gotta hold on to what we’ve got
It doesn’t make a difference if we make it or not
We’ve got each other and that’s a lot for love
We’ll give it a shot”

Whoa, we’re half way there
Whoa oh, livin’ on a prayer
Take my hand, we’ll make it, I swear
Whoa oh, livin’ on a prayer

Tommy’s got his six string in hock, now he’s holding in
When he used to make it talk so tough, ooh, it’s tough
Gina dreams of running away
When she cries in the night, Tommy whispers
“Baby, it’s okay, someday”

We’ve gotta hold on to what we’ve got
It doesn’t make a difference if we make it or not
We’ve got each other and that’s a lot for love
We’ll give it a shot

Whoa, we’re half way there
Whoa oh, livin’ on a prayer

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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