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The World
China simulates striking Taiwan on second day of drills: China sent dozens of warplanes towards Taiwan for a second day of military drills on Sunday, launching simulated attacks in retaliation to the island’s president, Tsai Ing-wen, meeting the US House speaker during a brief visit to the US. Taiwan’s defense ministry said it was monitoring the movements of China’s missile forces, as the US said it too was on alert. China’s People’s Liberation Army (PLA) sent 70 warplanes, including fighter jets, reconnaissance craft and refuellers, into Taiwan’s air defense identification zone (ADIZ) on Sunday morning, according to Taiwan’s defense ministry. It did not provide a map or locations, but said 31 planes had crossed the median line – the de facto border in the Taiwan strait between Taiwan and China. (The Guardian, Reuters)
Europe must resist pressure to become ‘America’s followers,’ says Macron. Europe must reduce its dependency on the United States and avoid getting dragged into a confrontation between China and the U.S. over Taiwan, French President Emmanuel Macron said in an interview on his plane back from a three-day state visit to China. Speaking with POLITICO and two French journalists after spending around six hours with Chinese President Xi Jinping during his trip, Macron emphasized his pet theory of “strategic autonomy” for Europe, presumably led by France, to become a “third superpower.” He said “the great risk” Europe faces is that it “gets caught up in crises that are not ours, which prevents it from building its strategic autonomy,” while flying from Beijing to Guangzhou, in southern China, aboard COTAM Unité, France’s Air Force One. (Politico EU)
Sen. Lindsey Graham openly voiced fears about a potential Chinese blockade of Taiwan, a test to the U.S. he said could line up with the run-up to the 2024 presidential election. “Taiwan’s not the problem,” he told host Shannon Bream on “Fox News Sunday.” “Lindsey Graham’s not the problem. It’s Putin and it’s Xi,” referring to the leaders of Russia and China and their expansionist aims. But an increased American presence in the region, he said, could allay threats from the emboldened duo.The remarks by Graham (R-S.C.) came amid military drills conducted by China in proximity to the island, a democracy which has long been claimed as a province by its massive northwestern neighbor. (Politico)
New Details on Intelligence Leak Show It Circulated for Weeks Before Raising Alarm: One of the most significant leaks of highly classified U.S. documents in recent history began among a small group of posters on a messaging channel that trafficked in memes, jokes and racist talk. Sometime in January, seemingly unnoticed by the outside world, an anonymous member of a group numbering just over a dozen began to post files—many labeled as top secret—providing details about the war in Ukraine, intercepted communications about U.S. allies, such as Israel and South Korea, and details of American penetration of Russian military plans, among other topics. The documents, which appear to have numbered in the hundreds, stayed among the members of the tiny group on the Discord messaging platform until early March, when another user reposted several dozen of them to another group with a larger audience. From there, at least 10 files migrated to a much bigger community focused on the Minecraft computer game. (Wall Street Journal)
Leaked Documents Suggest Ukrainian Air Defense Is in Peril if Not Reinforced: A huge influx of munitions is needed to keep Russia’s air force from changing the course of the war, according to U.S. officials and newly leaked Pentagon documents. (New York Times)
Just 20 stocks account for almost 90 per cent of the US benchmark index’s $2.36tn gains so far this year, as instability in the banking sector has driven down interest rate expectations and boosted the attraction of Big Tech. Among the big gainers, shares in chipmaker Nvidia have climbed by 83 per cent so far this year, while Facebook owner Meta is up 76 per cent and Salesforce has climbed 42 per cent, underlining the heavy concentration in the world’s most influential stock market. The market value of those and the other 17 best performing stocks in the S&P 500 have surged by $2.05tn in 2023. Apple’s valuation alone has shot up by almost $600bn, or 30 per cent, in the past three months. (Financial Times)
Economy
A $1.5 trillion wall of debt is looming for U.S. commercial properties, as office, retail property valuations could fall as much as 40%: Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of 2025. The big question facing those borrowers is who’s going to lend to them? “Refinancing risks are front and center” for owners of properties from office buildings to stores and warehouses, Morgan Stanley analysts including James Egan wrote in a note this past week. “The maturity wall here is front-loaded. So are the associated risks.” (Bloomberg)
End May Be in Sight for Global Rate-Hike Cycle as Fed Nears Peak. Most global central banks may be either close to a peak or already done with interest-rate hiking, auguring a hiatus before possible monetary loosening comes into view. With the first signs of dents in economic growth now visible, and fallout from financial-market tensions lingering, any pause by the Federal Reserve after at least one more increase in May could cement a turn in what has been the most aggressive global tightening cycle seen in decades. (Bloomberg)
A different kind of mortgage crisis. The 2008 financial crisis was caused, in part, by mortgage lenders taking on too much risk. Now, the pendulum has swung so far in the opposite direction that the private sector has all but ceased taking on mortgage risk any more. Private-sector risk aversion has prevented millions of Americans from buying houses. It is also driving banks out of the mortgage game. That might be OK, if the nonbanks weren't disappearing too, and unlikely to return any time soon. Flashback: Banks paid more than $100 billion in mortgage-related fines after the financial crisis — a stark reminder that such activity can prove extraordinarily costly. That, alongside more stringent government rules about how much capital banks need to allocate to such activity, has resulted in what one banker described to Axios as a "derisking" in mortgage lending — a/k/a an ongoing exit. (Axios)
Chinese banks ditch bad loans amid property woes. During their recently concluded earnings season, Hong Kong-listed Chinese banks sent a positive signal about their asset quality. Even as China's property market faltered, their nonperforming loan ratios -- which measure bad debts as a percentage of the total -- remained steady overall. The reports of the Chinese banks also demonstrated the considerable financial engineering that was involved in keeping the ratios stable. Lenders last year sold off 2.7 trillion yuan ($392 billion) in NPLs, according to the mainland regulator, with many of the delinquent debts winding up on the books of state-owned distressed asset management companies that often absorb troubled credits in China. (Nikkei Asia)
See the fastest growing (and shrinking) U.S. states. Idaho, Montana and Florida saw the highest population growth among U.S. states between 2020-2022, per new U.S. Census Bureau data, while New York, Illinois and Louisiana suffered the most shrinkage. The big picture: The past few years have been especially turbulent for population trends, with the COVID-19 pandemic affecting birth and death rates, interstate and international migration, and more. By the numbers: Idaho's population grew by nearly 4.9%, while that of Montana and Florida grew by 3.3% and 3.0%, respectively. Utah and South Carolina came in just a hair under 3%. New York, meanwhile, shrank by 2.1%, while Illinois and Louisiana lost 1.6% and 1.3% of their populations, respectively. (Axios)
Technology
Tesla will build a new battery factory in Shanghai, increasing investment in China at a time of brewing tensions between Beijing and Washington. Tesla will manufacture its Megapack large-scale energy-storage unit in the new facility, which adds to its factory for electric vehicles in Shanghai. The company led by Elon Musk, who is said to be visiting China this weekend, made the announcement at a signing ceremony for the project in Shanghai. Tom Zhu, Tesla’s senior vice president of automotive, and Shanghai government officials including vice mayor Wu Qing attended, with Tesla Vice President Tao Lin signing the contract. (Bloomberg)
Inside Apple’s push to build more devices and components outside of China: The company is hard at work on diversifying its supply chain to move more production out of the Asian country. The piece explores Apple’s efforts in India, Malaysia and Vietnam — and how more products will soon be losing the “Assembled in China” label. The article includes details on what products and parts Apple plans to move — and where — as well as iPhone 15 production details, failed diversification attempts in the US involving the Mac Pro desktop, how specialized “tiger teams” are fixing cracks in the supply chain, internal concerns about the diversification push, questions surrounding moving chip manufacturing and more. (Bloomberg Businessweek)
Apple pushes back on unions: Apple’s attempts to keep its stores from unionizing are continuing, with the iPhone maker looking to avoid the kind of labor inroads seen at companies like Amazon.com Inc. and Starbucks Corp. Over the past two weeks, managers at Apple’s roughly 270 US retail outlets held meetings with staff members to discuss the risks of unionization and provide a planned update on bargaining between the company and the first unionized store, a location in Towson, MD. The efforts have so far appeared to work: Only two Apple stores have unionized — Towson and Oklahoma City — and locations that sought to organize workers in Atlanta and St. Louis have walked back their efforts. (Bloomberg)
We could run out of data to train AI language programs. Large language models are one of the hottest areas of AI research right now, with companies racing to release programs like GPT-3 that can write impressively coherent articles and even computer code. But there’s a problem looming on the horizon, according to a team of AI forecasters: we might run out of data to train them on. Language models are trained using texts from sources like Wikipedia, news articles, scientific papers, and books. In recent years, the trend has been to train these models on more and more data in the hope that it’ll make them more accurate and versatile. The trouble is, the types of data typically used for training language models may be used up in the near future—as early as 2026, according to a paper by researchers from Epoch, an AI research and forecasting organization, that is yet to be peer reviewed. (MIT Technology Review)
Tech Rally Faces a Reckoning Ahead of Tough Earnings Season. This year’s 20% rally in US technology stocks is decoupling from reality ahead of what’s predicted to be a gloomy reporting season, the latest MLIV Pulse survey shows. While investors have flocked to tech in the market shakeup amid recent banking turmoil, the rotation is at odds with analyst calls for the steepest drop in quarterly profits for the sector since at least 2006. Nearly 60% of the 367 respondents surveyed by Bloomberg said the bounce in the shares had nothing to do with earnings expectations. (Bloomberg)
Smart Links
Options trading surges as investors brace for US regional bank volatility. (Financial Times)
Whole Foods Market Explores Building Off-Site Kitchens to Supply Food Bars. (Wall Street Journal)
Black unemployment rate hits record low 5 percent. (Washington Post)
Futuristic Vertical Farming Startups Are Struggling in the Tech Downturn. (Bloomberg Businessweek)
The portal to resolve surprise bills has been inundated with disputes. (Healthcare Dive)