Israel’s war strategy strains relations with US

0:02Good morning for the Financial Times. Today is Tuesday, June 9th. This is your FT News Briefing. OpenAI is officially going public, and U.S. investors are getting the rate increase heebie-jeebies. Plus, the White House is trying to figure out how to handle Israel's recent strikes on Lebanon. I'm Mark Filippino, and here's the news you need to start your day.

0:32OpenAI confidentially filed for an initial public offering yesterday. the chat GPT maker will likely be valued at more than a trillion dollars. This comes just a week after OpenAI's rival Anthropic filed its own IPO paperwork and just days before SpaceX, Elon Musk's company, is set to go public. But OpenAI's IPO might not come so quickly. The company said in a statement that it hadn't decided on timing yet and that it, quote, may be a while because there are things we want to do that are likely easier as a private company. OpenAI's potential listing will test the appetite that investors have for a company with unprecedented revenue growth, but also huge losses.

1:20Okay, we're going to zoom out and talk about the U.S. equities market as a whole now. Wall Street had a slight change of heart yesterday. U.S. equities rebounded a bit after a rough day on Friday for AI-related stocks. The tech-heavy Nasdaq rose nearly 1 % on Monday after it fell more than 4 % on Friday. And all this volatility is happening during an important week for the market, like I just mentioned. OpenAI filed IPO paperwork, and SpaceX is expected to list on Friday in what could be the biggest initial public offering of all time. Here to tell us more is Robert Armstrong. He's the FT's U.S.

1:56financial commentator and host of the Unhedged podcast. He also writes the Unhedged newsletter. Hi, Rob. How are you? It's good to be back on the show. I'm very happy to have you, Rob, because there's a lot of stuff happening at this moment that is very confusing. Well, I think with the route on Friday, you have to distinguish between the proximal cause and the ultimate or underlying cause. The proximal cause is that we got the third consecutive quite strong monthly jobs report that show some life in the jobs market. And when the economy is suddenly humming and we have a little bit of an inflation problem, it is very hard for the Federal Reserve to justify a cut in rates.

2:43And they may even be pushed into raising rates. And stock markets do not like higher interest rates. But I would say there is a more significant underlying cause. like one rate increase between friends, it's not going to change the picture all that dramatically. I think this is a case where a very, very strong market that had been rising powerfully now for quite a while, and when markets get that much momentum, you get these events where it's like the market needs to take a breather. So it did get its breather, right, Saturday and Sunday, and, you know, it came back a little stronger on Monday, But what a week to have all this volatility crop up, because as I mentioned, OpenAI filed and SpaceX plans to launch, pun intended, perhaps the biggest IPO of all time.

3:37Could this volatility hurt those initial public offerings? You know, what's what's going on? I would think of it like this. Everybody is paying very high prices for stocks right now. They're chasing the price of the stock market up. and along comes Elon and says, you know what? I'm going to add even more supply of stocks, right? He's going to give investors more things to spend money on. And so there is a worry that the demand that is absorbed by the SpaceX IPO goes missing from other stocks that have been rising recently. So the shadow of that IPO makes the stuff I talked about earlier, the anxiety about AI, uncertainty about its economic prospects, even worse.

4:28Is there concern that it could spread to other markets as well? I know we've seen a smaller dip in Europe too. Well, it has spread to other markets. In Korea, especially, and also Taiwan, those have now become very lopsided markets themselves, to an extent Japan too. So, you know, the chip trade, the AI hardware trade is a global trade now, and it's driving things up all over the place. So it is spreading, and if there is an AI correction, it is going to be a global market event, not an American market event. Rob, dare I say the P word? Peppermint?

5:19No, pop. I think, you know, that's in the range of possibilities when markets go on very strong, sustained runs. But that's not the first concern in my mind right now. That we'll see a massive popping of a bubble and a resetting of equity prices to match, say, 2000 or 2008. Now, having said that, there will be, of course, a huge crash tomorrow. And I will be a laughingstock. But, you know, now I'm a hostage to fortune. That's why we have you on, Rob.

5:50Rob Armstrong is the FT's U.S. financial commentator. He also hosts the Unhedge podcast, and he writes the Unhedge newsletter. Rob, you're a busy guy. Thanks for making the time for us. Cheers. Thanks for having me.

6:08A few weeks ago, we told you that BP removed its chair, Albert Manifold, over concerns about his behavior. There weren't a lot of details then, and there are still very few now. Shareholders told the FT they remained in the dark about the precise circumstances that led to Manifold's ousting. The other big question for investors is, where does the oil major go from here? Manifold was hired last year to shake up BP. He planned to sell off large parts of the company, overhaul the board of directors, and cut costs. BP apparently told shareholders that they're going to stay the course on that strategy.

6:42Around the time Manifold was sacked, BP's interim chair, Ian Tyler, said the board had, quote, deep conviction in the plan and that it's moving along. Shareholders said they still need more clarity on what's next. BP said it's committed to delivering value for its shareholders.

7:03Turning now to the Middle East, Israel hit Lebanon over the weekend, targeting a Hezbollah stronghold in Beirut. Iran backs Hezbollah and retaliated by hitting Israel shortly after. Tehran and Israel halted any military operations against each other on Monday, but Tel Aviv's war strategy is increasingly leaving the U.S. between a rock and a hard place. Here to discuss is the FT's senior foreign affairs correspondent, Mihul Shravastava. Hi, Mihul. Hi, guys. So why hasn't the ceasefire stopped the fighting between Israel, Lebanon, and Iran? I think the best way to think about it is as two separate but interconnected ceasefires.

7:42There is the U.S. and Israel war in Iran, and then Israel's war with Hezbollah. And Hezbollah is supported by Iran, and Iran's other proxies in the region have been decimated over three years of war with Israel. Hezbollah remains standing, and projecting itself as being the protector of the Lebanese homeland has become part of Iran's posture. Yeah, and what about Israel? Why is Prime Minister Benjamin Netanyahu striking Lebanon despite the ceasefire? Well, you have to look at it through two lenses. One is Israel has elections coming in October, and some 60 ,000, 70 ,000 residents of northern Israel have been displaced from their homes for about two and a half, three years now.

8:25The Israeli army has invaded Lebanon, has occupied hundreds of square kilometers of southern Lebanon, but Hezbollah is not defeated. It has rockets, and it has declared its intention to defend Lebanese territory by attacking at least northern Israel and further on. Now, Mahul, this really complicates things for the U.S. because while President Donald Trump can negotiate directly with Iran, he can't control how Israel approaches Iran or Lebanon. So how is this impacting how he treats his relationship with Benjamin Netanyahu? I mean, the last 10 days, we've seen the most strained relationship between President Donald Trump and Prime Minister Benjamin Netanyahu.

9:07There was a quite infamous phone call by now reported by Axios and confirmed by Trump himself later on, where he shouted at Prime Minister Netanyahu. He called him effing crazy. He blamed a lot of the hatred against Israel on Netanyahu himself in order to get him to call back this major raid. But then a week later, Netanyahu carries out a precision airstrike, supposedly. We don't know whether this was greenlit by Trump, but we definitely know that he was unhappy about it because this resulted in a flare-up that almost jettisoned any progress that may have been made in order to end the larger regional war, which is what has pushed oil prices up and has blocked off the state of Hormuz.

9:49So then who does have the upper hand here? Is it the U.S. or is it Israel? Well, I think that we've had now with Donald Trump, who's well known to be quite a plain speaker, a very clear assertion of the relationship between the United States and Israel, where he very clearly understands that U.S. military assistance, U.S. diplomatic assistance is crucial to Israel, especially at a time like this at a war. He told the FT on Sunday in an interview with one of our columnists very clearly, he won't have any choice. I call the shots. I call all the shots. Netanyahu doesn't call the shots. For Prime Minister Netanyahu, this is a very problematic situation to be in, in that you have aligned yourself with U.S.

10:28interests so closely that he's now being accused of being subservient to Trump. But Netanyahu also understands that he's in a position to play spoiler as these negotiations go on and set his own red lines. And the red line that they have set is that if Israel faces a threat from Hezbollah, which they say they constantly do, they're free to attack anywhere in Lebanon. and if the United States wants to reign them in, the United States wants to have a large agreement with Iran, this specific issue that Israel has with Hezbollah has to be taken into consideration. That's the FT's senior foreign affairs correspondent, Milhul Shavashtava.

11:04Thanks, Milhul. Thanks for having me, guys.

11:13Before we go, former crypto mogul Sam Bankman-Fried wants a pardon from President Trump. Bankman Freed was convicted of fraud and money laundering in 2023. That was after he misdirected billions of dollars in customer funds through his crypto exchange FTX. He's now serving a 25-year sentence. Now, Bankman Freed might have a shot at a pardon here. Trump has let off other crypto executives during his time in office. In October, he pardoned the founder of Binance. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing.

11:48Check back tomorrow for the latest business news.

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