US-China trade tensions regain momentum

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• Israel plans to cut ties with the Gaza Strip once the war with Hamas is over, defence minister Yoav Gallant said today, in the most explicit comments on government strategy yet.

• OpenAI, the parent company of ChatGPT, is in talks with investors about selling shares that would value the company at $86bn, a figure roughly three times higher than it was six months ago. The stock sale would make OpenAI one of the world’s most valuable private companies.

• US president Joe Biden has asked Congress for a national security package worth more than $100bn that features $61.4bn in funding for Ukraine and $14.3bn for Israel.

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Good evening.

Beijing’s new export restrictions on graphite and Chinese chipmaking’s “existential challenge” have thrust US-China trade frictions into the spotlight and are set to escalate geopolitical tensions between the two powers.

The export curbs on graphite, a mineral crucial for the electric vehicle transition, come after the Biden administration tightened controls on the sale of cutting edge AI chips to China earlier this week. Shares in chipmaker Nvidia — which has relied on the Chinese market for up to 25 per cent of its data centre chip revenue — fell about 6 per cent in early trading in New York after the updated rules were announced.

Washington’s controls may leave Chinese tech giants Alibaba and Baidu, which sit at the forefront of China’s ambitions for semiconductor self-sufficiency, relying on outdated and stockpiled chips.

Two people close to the matter told the Financial Times that Chinese regulators are likely to hold up US chipmaker Broadcom’s $69bn acquisition of cloud software group VMware as sanctions sour the environment for US tech acquisitions.

In 2017, then president Donald Trump blocked Broadcom’s attempted acquisition of Qualcomm for $142bn as he stoked a trade war against China.

The ramping up of trade tensions comes ahead of a long-awaited summit in Washington today between US president Joe Biden and European Commission president Ursula von der Leyen together with EU council chief Charles Michel.

Tariffs are set to be the main topic of conversation, after the leaders booked the date to talk about a green steel club in a bid to end the transatlantic tariff war started by Trump. Trade levies on China are part of the negotiations.

The US has agreed to lift tariffs permanently on EU steel and aluminium imports on condition Brussels applies similar ones to China, which Washington says is flooding the market with cheap metal. Talks on that front have been held up as the EU will first have to conduct an investigation that proves China is subsidising its producers.

Here’s our take on the race for global semiconductor supremacy at the centre of US-China trade restrictions:

Need to know: UK and Europe economy

Those mounting inflationary pressures have resulted in UK consumer confidence suffering its biggest month on month decline in more than three years. Research has shown that telecoms groups are set to raise UK mobile and broadband bills by 9 per cent next year.

German producer prices fell 14.7 per cent in the year to September, the fastest annual decline since records began in 1949. The rapid drop in the price of goods produced by German companies points to an unwinding of inflation in Europe’s largest economy and has been accompanied by falling wholesale energy prices.

The Labour party has overturned two Tory majorities in England in a blow to UK prime minister Rishi Sunak ahead of a general election expected next year. Labour’s victories came shortly after tickets for the party’s February business conference sold out in a matter of hours, raising almost £400,000, as Britain’s corporates continue to cosy up to the main opposition party. Labour has already raised £6.5mn from private donors in the second quarter of this year.

Need to know: Global economy

President of Blackstone, Jonathan Gray, told the Financial Times in an interview that the jump in long-term treasury yields will soon force consumers to tighten their belt and cause the economy to slow. His comments came after 10-year yields rose to their highest level in 16 years on Wednesday and 30-year Treasury yields increased to more than 5 per cent.

“For this year short positioning on the shekel has reached an extreme level,” said Rohini Grover, a currency strategist at Deutsche. Bets against the Israeli currency surged in the week following Hamas’s October 7 attack on Israel, mounting pressure on the Bank of Israel to keep interest rates on hold despite the high cost of a war.

Chinese investors sold the most US stocks and bonds in four years in August, prompting more speculation that Beijing is mounting a defence of the renminbi’s dollar exchange rate.

Venezuelan bond prices surged — some by more than 70 per cent — after the US eased sanctions that restricted US investors from trading them.

Will Peru’s government attract the investment it desires? A new special report analyses the countries cooling political turmoil, a Chinese-backed megaport and a vibrant national cuisine, as president Alberto Otárola vows to focus on investment.

Need to know: business

Country Garden, China’s largest property developer which has been fighting off default for weeks, missed its final deadline for a dollar bond coupon payment, marking the latest casualty for the country’s property market in crisis.

Gautam Adani, the tycoon at the head of India’s Adani Group, secured a $3.5bn refinancing package from a group of 10 international banks including Barclays, BNP Paribas and Deutsche Bank. The package comes after India’s main opposition party called for an investigation into the group over allegations reported by the Financial Times that the conglomerate appeared to have inflated the cost of imported coal.

The world’s biggest contract chipmaker, Taiwan Semiconductor Manufacturing Company, announced that despite a decline in quarterly revenues, the demand for its most advanced chips was positive.

Rentokil, the world’s biggest pest control group, saw its shares lose almost a fifth of their value yesterday, hit by subdued US demand. The plunge follows a period of growth in the pest control industry as the pandemic and recent bedbug concerns across Europe strengthened demand.

Science round-up

Concerns over climate change are fuelling breakthroughs in satellite technology that harnesses the sun’s energy. A Big Read details the rise of space-based solar power.

Western sanctions against Russia also apply to scientific co-operation including the hunt for new chemical elements, writes commentator Anjana Ahuja.

Richard Hatchett, head of the Coalition for Epidemic Preparedness Innovation, said a “global early warning system” was essential to prevent future pandemics and speed up vaccine development. The UK’s official Covid inquiry, which continues until 2026, was told that the early pandemic response was hindered by a “Chinese wall” between officials and scientists.

Merck called for the UK government to do more to support the pharma industry as it opened a £1bn research centre in London. The US-based drugmaker aims to work closely with academics in creating new treatments in areas such as neurology.

The FT’s Peggy Hollinger asks if the next great leap forward in space is a lunar economy?

Some good news

Bird Flu outbreaks in the UK have plunged since the spring say scientists who are cautiously optimistic about the decline of avian flu, which devastated wild birds and farmed poultry in the UK last year.

Something for the weekend

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