Houthis attack Riyadh airport

0:00This episode is brought to you by Hard Lessons, a Morgan Stanley podcast. Iconic investors like Stan Druckenmiller, John Gray, and Rick Reeder break down calls that worked. I knew that this stock would go up for at least two or three years and go up a lot. Ones that didn't. I quite frankly thought the company could have reversed course. They didn't. And what they learned in between. When you buy everything and it goes up, it doesn't train you to be a great investor. It's these hard lessons that make all the difference. Listen to Hard Lessons wherever you get your podcasts.

0:33Good morning from the Financial Times. Today is Monday, October 12th, and this is your FT News Briefing. The White House threatens to block arms shipments to Ukraine, and Houthi rebels hit Riyadh's international airport. Plus, AI borrowing is slowing down. I'm Josh Gabbard-Wyon, and here's the news you need to start your day.

1:02The Trump administration has been pushing hard to get Ukraine to stop striking Russian energy infrastructure. We said you can do whatever you want to Russia, don't hit the refineries, because that's a world problem that's caused. And U.S. President Donald Trump is threatening to block Ukraine from procuring American weapons in order to do so. That's according to European officials who either received a call from their American counterparts over the weekend or were briefed on them. The White House declined to confirm or comment on those calls. It comes as Trump is trying hard to bring down American fuel prices ahead of the upcoming midterm elections.

1:38So much so that he even signed a surprise deal with Russian President Vladimir Putin over the weekend. That will release more diesel onto the global market. Trump also claimed yesterday on social media that Russia and Ukraine had agreed to a, quote, energy ceasefire. But Kiev's presidential office says it doesn't know anything about that. There was no immediate confirmation of an energy ceasefire from Moscow either.

2:07It's the deadliest strike on Saudi Arabia in more than a decade. On Saturday, Yemen's Houthi rebels killed 12 people and injured more than 300 with a missile strike on Riyadh's international airport. Then, less than 24 hours later, another attack on that same airport on Sunday night. The wave of strikes is part of an escalation of the conflict between Iran-backed Houthis and Saudi Arabia. My colleague Ahmed Al-Omran has been covering this. Hi, Ahmed. Hi there. Ahmed, can you start just by telling me about this really unprecedented strike that took place on Saturday? This attack came on the back of several similar attacks that the Houthis have launched on Saudi airports over the past couple of weeks.

2:51And this attack on Saturday was the deadliest by far. Those killed include a few Saudi citizens, one American citizen, two men from Bangladesh, Egyptian, other Arab nationalities. And it's created an atmosphere of worry among many people, especially damaging the airport that hundreds of thousands of people use every day as they travel, both for business and pleasure. Right. And the Riyadh airport, it's been closed since Saturday. But there's actually been multiple attacks on the airport this week, right? Why has Saudi Arabia been struggling to defend itself against these kinds of attacks? Yeah, the fact that these attacks have repeated and they hit multiple targets do raise serious questions about Saudi air defenses and the ability to intercept these missiles as they come.

3:42Obviously, this comes at the back of months of the U.S.-Iran war that depleted and affected the stockpiles of interceptors and air defenses. But for the most part, during the earlier conflict in the year, Saudi air defenses have performed really well. And the fact that the Houthis have managed to hit the airport does raise questions about are Houthis using new technologies or new weapons that Saudis have not experienced before. From the Houthi side, I mean, what's changed for them? How have they been able to mount these kinds of attacks? The Houthis in Saudi Arabia were in a truce since 2022. So there wasn't much happening for the past four years.

4:26But that truce collapsed in July, and since then there have been escalating attacks from both sides. And earlier this week, the Saudi-backed Yemeni government announced they're launching a major operation to recapture all the territory that Houthis control in Yemen. As a result, we've seen the Houthis respond in force, and they wanted to make Saudi Arabia pay a very hefty price for backing this attempt to recapture the territory in Yemen. And in terms of the chosen target, right, Riyadh has become a really important destination for international business in the Gulf. It's seen as very stable. What kind of impact could these strikes have on Saudi Arabia's economy in the long term?

5:13Major, major impact. Obviously, starting this month, Saudi will be hosting a series of big and major events. We have the World Energy Congress that is kicking off. And, you know, some executives of major oil companies had to withdraw because they couldn't travel to Riyadh after the airport was closed. And later this month, we have the Future Investment Initiative Conference, which is Saudi Arabia's flagship annual event that attracts bankers, financiers, CEOs from all around the world. Crown Prince Mohammed bin Salman's plan to reform the economy depends on attracting foreign investors and foreign tourists to the country.

5:55And if people feel that the country is not secure, that the stability that Saudi has so long been priding itself on is no longer there, that will have a major impact on the Saudi economy and Saudi economic reforms. Yeah, absolutely. And Ahmed, what are you going to be watching for in terms of this conflict, how it's unfolding and the potential response? Obviously, it's still a very fluid situation. People are on edge and waiting to see what happens, whether the airport would reopen, how Saudi would respond, and then what Houthis target again and what targets they would hit again. The other thing to watch for is whether there will be any American response, especially that one of the victims is an American citizen who died in the attack on the airport.

6:43Over the weekend, President Trump was asked if he would join the strifes against the Houthis, And he said that they were considering this. But so far, he seems reluctant to join the fight. So we'll have to wait and see what he decides. Ahmed Al-Omran is the FT Saudi Arabia correspondent. Thanks for your time. Thanks, Josh.

7:08Tech companies have been issuing debt like crazy. They're borrowing to build data centers, buy expensive chips and train new AI models. They've borrowed almost half a trillion dollars since January. But the situation appears to have taken a bit of a turn last month. The issuance of new AI-related debt fell by more than 50 % in September. I'm joined now by the FT's Michelle Chan to talk about it. Hi, Michelle. Hi, thanks for having me. So, Michelle, why did tech companies slow down their borrowing so much in September? Right. Morgan Stanley said in research that it's because they have been borrowing a lot this year and they are taking a break before they come back to the market.

7:49But a lot of data that we have gathered in the market suggests that investors are growing more cautious in buying this kind of AI-related debt. We're seeing that from the order book that these debt, when they come to market, they receive fewer orders. Investors are requiring a higher risk premium, meaning that they need more yield to buy this kind of bonds. And we also see investors suggesting that maybe some of these heavy investments might not translate to actual profit in the future. So that's why they're being more cautious here. I mean, when you speak to people that are sort of on the buy side, you know, you mentioned that there's kind of a dampening of demand.

8:27I mean, are there certain types of things that they're just less willing to put up with, I guess? Yeah, sure. So we are seeing more weakness in the long end of the curve, meaning that investors are willing to lend to a company for maybe three, five years. But when you're going to like 20 year, 30 year bond, we are seeing significantly less demand for the kind of long term borrowing. And we're also seeing, you know, projects with construction risk, meaning that you are, you know, funding a project from the ground up. People are more cautious because there are risks associated with getting the power, connecting the grid, getting local permitting.

9:08And that all runs against increasing local opposition to data center projects across the United States. Presumably, this could have an impact on the tech companies that need to borrow money if people are not as willing to lend them money. What about for the bond market more broadly? I mean, what kind of impacts could this have? It really has an understated impact on the broader bond market because before the AI borrowing comes along, the bond market is actually shrinking. There are not enough companies borrowing money because interest rates are getting so high. So AI-related borrowing has been supporting the bond market.

9:43And also it has an extended impact to U.S. treasuries because a lot of these AI companies, tech companies, they have a really high credit rating. Microsoft, for example, has a AAA rating that competes with a lot of sovereign debt. So investors have been weighing against whether I should invest in Microsoft or invest in a government bond. And if this borrowing spree slows, it has a really huge impact on the bond market. Interesting. And I mean, just stepping back for a second, tech companies slowing down their rate of borrowing. Is that the sign of a kind of slow deflation of the AI bubble? Is that what might be going on here?

10:23I think it's fair to say people are more aware of a bubble, a potential bubble. I think there are still a lot of borrowings in the pipeline. We reported that Tesla is trying to borrow$40 billion sometime next year. And Broadcom has assembled a$60 billion debt package to buy chips for Anthropik. So I guess it's still very early to tell whether the borrowing would stop. But I guess it's fair to say that investors, when they assess this kind of deals, They are being more cautious. They are being more thoughtful. And they're not just rushing into it. They're just like, hey, give me a concrete roadmap of how it can be turned into a profitable business model instead of just rushing in the AI girl rush.

11:04Michelle Chan is the FT's U.S. credit correspondent. Thanks, Michelle. Thank you.

11:14This week, the five largest American investment banks are expected to report their lowest trading revenues of the year. JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America will all release third quarter earnings over the next few days. Despite the low trading revenues, though, the FT's Josh Franklin says this could be the best third quarter on record. But it is going to be a pretty steep drop quarter on quarter. Now, there is often a seasonal slowdown in the third quarter because you have the summer holidays and things. You have the Labor Day holiday as well in the United States.

11:48But even by those seasonal standards, this is going to be a particularly strong slowdown quarter on quarter. Still up on the year, but I think it does tell you that this hot streak that Wall Street's been on is cooling down to some extent. One reason for the coming slowdown has to do with Asian equities trading. You see a lot of companies with exposure to the AI infrastructure build out like SK Hynix. Investors have really been focusing on companies like that. That slowed a little in the third quarter, potentially. And then banks executives have also talked about a kind of potential softening in the fixed income currencies and commodities trading business, which really benefited from geopolitical and rate expectation moves that potentially was just not quite as gangbusters as prior quarters.

12:34While this is a slowdown for Wall Street, the rest of the economy shouldn't be too worried, at least for now. I think it looks like from all expectations and comments from the banks, it's all about the unemployment rate. And as long as unemployment rate stays relatively low and people, even if they don't feel great, if they have a job, if they want one, they're still able to meet their basic payments. And that's going to mean that credit is going to be okay. But that's really for the banks, the number that they talk about as being the crucial one. Josh Franklin is the FT's U.S. banking editor.

13:13Before we go, there are countless voices competing to break the news and tell you the what, the who, and the where. But to get a true understanding, you need to know the why. With over 700 of the best journalists in the world, the FT goes deeper to help you see the whole story and truly understand why it happened, why it's important, and why it matters. Subscribe to the FT today and save money on a standard annual digital subscription until October 28th. We'll have the link to that and all of the other stories from today's episode in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

14:03AI sovereignty. Stefan Israel at AWS joins me. Digital borders shall not become digital worlds which are not interconnected. As does Catherine DiLorenzo at A &O Sherman. It looked like a race to write the rulebook and not just a race to build the most powerful technology. And Ali Usten at McKinsey. Sovereignty. Tankers, data centers, engineering and AI talent in the country. Listen to The Next Five wherever you get your podcasts. Enjoy. Capital raising is being redefined in real time, from macro disruptions and shifting investor expectations to AI-driven demand and the rise of private credit. When headlines can tilt markets overnight, how can companies stay on course?

14:44Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts.