by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with an apparent assassination attempt against Japanese Prime Minister Kishida.  Although Kishida escaped unharmed, the security failure raises concerns for leaders attending the Group of Seven summit in Japan next month.  We next review a wide range of other international and U.S. developments with the potential to affect the financial markets today, including signs that China’s first-quarter economic growth will come in healthy when it’s released tomorrow and new evidence suggesting the U.S. is about to experience a rebound in manufacturing activity.

Japan:  Prime Minister Kishida was apparently the target of an attempted explosives attack as he prepared to deliver a stump speech for a local by-election near the southwestern city of Osaka on Saturday.  The assailant’s pipe bomb landed just feet from Kishida, but security personnel whisked him away before it exploded, and the prime minister was not injured.

• Coming just nine months after Former Prime Minister Abe was assassinated by an assailant with a homemade gun, the incident on Saturday points to continuing gaps in the security for Japanese leaders.
• Moreover, the incident raises questions about the security environment for the global leaders who will attend a G7 summit in Hiroshima next month.

China:  Numerous signs indicate that tomorrow’s report on first-quarter gross domestic product will be in line with the government’s goal of 5% growth this year.  New data today showed that March new home prices were up 0.5% month-over-month, accelerating from a rise of 0.3% in February and marking their strongest increase in almost two years.  The People’s Bank of China also kept its one-year medium-term lending facility interest rate unchanged at 2.75% today rather than cutting it, and last week the government announced better-than-expected export growth.  Continued economic recovery from China’s pandemic lockdowns will likely be positive for global stocks and commodity prices, at least in the near term.

Turkey:  National oil champ Turkish Petroleum will begin shipments this week from its new Sakarya gas field, just three years after discovering the deposit.  According to President Erdoğan, supplies from the new gas field will help slash energy costs for Turkish consumers and businesses.  The timing of the announcement was probably driven by President Erdoğan, who is at risk of losing his bid for a new term in office in the May 14 elections.

• Erdoğan’s electoral strategy is to tout his achievements in completing key economic projects and making Turkey a stronger player in global politics.
• Last week, Erdoğan also presided at a ribbon-cutting for the Turkish navy’s new flagship, the TCG Anadolu.  The landing ship, which can carry helicopters and armed drones, is Turkey’s largest ever naval ship.

Poland-Hungary-Ukraine:  Faced with a glut of imports from Ukraine due to the European Union’s policies to help the country deal with the Russian invasion, the Polish and Hungarian governments have announced a temporary ban on Ukrainian grain despite EU warnings that they could be violating the bloc’s trade policy.  The grain shipments were supposed to be re-exported to the Middle East and Africa but have been bottled up in Poland and Hungary due to a lack of truck and train capacity.

Russia-Ukraine War:  Reports indicate a Russian power station in the southern border region of Belgorod was knocked off line by an apparent Ukrainian drone strike.  Ukraine has staged numerous attacks on military sites within Russia, but today’s strike seems to mark an expansion of its attacks.  By shutting off power to Russian citizens, it broadens the impact of the attacks, potentially undermining Russian citizens’ confidence in the war effort and perhaps sparking stronger retaliation by the Russian military.

United Kingdom:  As the West continues to worry about China’s stranglehold on the rare minerals needed for future energy technologies, British geologists have identified eight sites in the U.K. that have the right geology to potentially yield 18 key metals and minerals, including cobalt and lithium.  The mapping marks the first time the U.K. has systematically identified geological potential for the resources needed to produce electric car batteries, semiconductors, and wind turbines.  The sites will still need to be explored, and any commercially viable deposits would probably take more than a decade to develop.

Sudan:  Over the weekend, military forces led by two rival generals began attacking each other in the capital Khartoum and elsewhere in the country, dashing hopes that the country could continue its transition to democracy after the country’s armed forces toppled its dictator in a 2019 coup.  Continued political instability opens the country to further interference from Russia and other countries that would want to take advantage of its strategic location in northeastern Africa.

U.S. Intelligence Leak:  New reporting indicates the classified U.S. intelligence documents posted by Air National Guardsman Jack Teixeira in his chat room were further disseminated by a pro-Russian blogger who had been in the U.S. Navy until late last year.  The revelation adds to concerns that the U.S. military could be infiltrated with Russia sympathizers who are willing to undermine the U.S. and potentially put U.S. military and government personnel at risk.  Such concerns could encourage even stronger U.S. government action against authoritarian states such as China, Russia, and Iran.

U.S. Industrial Policy:  New research by the Financial Times suggests the U.S. is about to enjoy a manufacturing boom sparked by the $400 billion or so in subsidies provided in last year’s Inflation Reduction Act and CHIPS Act.  The research identifies more than 75 large-scale factory commitments that will take advantage of the laws, which will create about 82,000 jobs.

• The research is consistent with our view that deglobalization, increased defense spending, and Washington’s new embrace of industrial policy will prompt significant re-industrialization in the U.S., creating new investment opportunities while also imposing such costs as higher interest rates and the risk of malinvestment.
• Even though Republicans largely opposed the two industrial policy measures and continue to criticize them, the analysis indicates more than 75% of the investments identified so far will be in Republican-held congressional districts, where they will create some 58,000 jobs. If true, that could eventually boost Republican support for the laws and ensure they have political support going forward.

U.S. Bank Regulation:  According to officials attending the International Monetary Fund’s annual meeting last week, the banking crises last month in the U.S. and Europe could prompt the Basel Committee on Banking Supervision to try enforcing its strictest regulations on small and mid-sized U.S. banks that are currently exempt.  The possible change would expand the Basel Committee’s reach beyond those that are just “internationally active” to those that are “internationally relevant.”  Such a move could impose greater compliance costs on smaller banks and reduce their profitability and lending activity.

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