Comeback

Hello from Melbourne,

Everyone loves a comeback story. Whether in Simone Biles' Paris gold, or Justinian's reconquest of Italy, they’re rare but memorable.?

There's been a similar narrative this week, with Ukraine's incursion into Kursk and the Democrats’ polling lead. Combined with Iran's seeming hesitancy at striking Israel – ostensibly due to ceasefire talks, and the US Navy's bolstered presence – it seems the liberal rules-based order, and the Washington Consensus, are back.

Yet away from the popping of commentariat champagne corks, there are vulnerabilities in these early victories. Kyiv’s salients are thin and its frontline is collapsing. Kamala Harris’s lead is more a function of saying little, than of voters warming to her ideas (and where they’ve been expressed, such as on price controls, many are turned off). And Iran’s delayed retaliation is more a function of prolonging the anticipation (and Israel’s alert systems) than of cold feet.

In financial markets, which have mostly rebounded, we may similarly be in the eye of a storm. Japan’s 5 August crash was overdone, and fears of a US recession have long been overblown, but the poor fundamentals expressed last week were still poor this week.?

Earnings multiples, particularly in technology stocks, remain high. Commonplace logistics snarls and trade policy risks aren’t priced in, let alone the tail risks of a Taiwan invasion or Donald Trump’s threatened 60% tariff on Chinese goods. Similarly, the cost of capital – no longer just a function of US interest rates in an increasingly multipolar world – is something many valuations could be getting wrong.

It's easy to list the risks, but harder to ascribe probabilities to plausible scenarios.?

We’ve begun to do that with our Geopolitical Edge product for clients (click here for more). And it’s easy to extrapolate the main headlines, but more time-consuming to conduct regular horizon-scanning exercises.

Which is why I hope you find the below digest of our stories from last week useful.

All the best,

Damien

Geopolitical Strategy

Middle East

• ISRAEL. PALESTINE. Negotiations, at best, buy time for diplomacy.
• ISRAEL. IRAN. Biden seemingly threatens Israel with Tehran.
• ISRAEL. IRAN. Fears return for an imminent retaliatory strike.
• UNITED STATES. IRAN. Claims of election interference open a new front.

Americas

• VENEZUELA. Maduro’s friends propose an off-ramp.
• UNITED STATES. Trump’s campaign looks doomed, but so it did in 2016.
• UNITED STATES. CHINA. The dollar dominates trade, but alternatives are growing.

Asia-Pacific?

• AUSTRALIA. NEW ZEALAND. Pacific allies deepen their ties to Washington.
• CHINA. THE PACIFIC. Palau warns of diplomatic coercion.
• THAILAND. Another political sacking risks going too far.
• KOREAN PENINSULA. Yoon offers to ease tensions with Pyongyang.
• KIRIBATI. A pro-China president retains his seat.
• PAKISTAN. AFGHANISTAN. Grim milestones are marked along the Durand Line.
• MYANMAR. CHINA. Reports of an internal coup within the Tatmadaw.
• INDIA. CHINA. Delhi denies a clash along the border.
• JAPAN. The prime minister announces he’ll step down in September.

Africa?

• MPOX. The world wakes up to a warzone crisis.

• LIBYA. Instability builds in a divided country.
• LIBYA. An internal power play escalates beyond Sharara.
• SUDAN. Peace talks proceed without the main party present.
• ETHIOPIA. SOMALIA.? Addis opts for talks over confrontation on Somaliland.

Europe

• UKRAINE. RUSSIA. As Kyiv advances to Kursk, Moscow nears Pokrovsk.
• UKRAINE. RUSSIA. A fire breaks out at the Zaporizhzhia power plant.
• SERBIA. Belgrade blames coup plotters on opposition to a lithium project.
• FRANCE. Macron returns to a full in-tray.