The Tories go back to basics

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. Good morning from the Financial Times.

0:34Today is Monday, October 5th, and this is your FT News Briefing. Kemi Badenak opts for bread and butter issues at the Tory party conference. I think you're seeing a switch of emphasis from the Tories, knowing that you can't out Farage Farage. And is the deal-making boom coming to an end? Plus, the Israeli government is pushing settler expansion in the run-up to elections this month. I'm Josh Gabordoin, and here's the news you need to start your day.

1:12Corporate dealmaking took a pretty decent hit last quarter. Higher borrowing costs, thanks to the war in Iran, and questions over the impact of AI led to a slowdown in corporate mergers and acquisitions. Dealmaking M &A is down about 13%, according to data compiled by the London Stock Exchange Group. That figure was driven in part by the unraveling of some mega deals, like the abandoned$400 billion tie-up between AstraZeneca and Bristol-Myers Squibb. Before the downturn last quarter, 2026 was actually on track to be a record year. But analysts think things might pick up again before the U.S. midterms.

1:49The idea is that companies might try to push through deals if they see the potential for a stricter regulatory regime under a Democrat-controlled House or Senate.

2:03UK party conference season is rolling on this week with the Conservatives in Birmingham, where leader Kemi Badenock is trying a new approach. While Labour is riding a wave of momentum with Andy Burnham and reform is proving to be a formidable competitor to the Tories, Badenock is going back to old-fashioned centre-right fiscal politics. The FT's George Parker is in Birmingham for the conference. Hi, George. Hi there. So George, Conservative Party conference is coming right off the back of a pretty well-received Labour Party conference. What are the Tories trying to hit home in Birmingham this week?

2:40Well, the first thing is they'll be trying to get a hearing because there's been a danger in the last few months of Kemi Badenow and the Conservative Party being drowned out, first of all, by Andy Burnham becoming the leader of the Labour Party and Prime Minister. He's had a middle of the honeymoon period at the moment, as you say. A successful Labour conference from last week in Liverpool. And of course, Nigel Farage on the right of the Tory party, someone else who sucks up a lot of political oxygen as well. So this is a big moment for Kemi Bader not to try to get a hearing, to try to get a message across the country that the Conservative Party is still relevant, that they've got a message that they hope will resonate with the public.

3:15And also an attempt, I think, by the party to reconnect to the business community who felt a bit shunned by the Tories over the last five or six years. Right. And she's targeting this sort of upper income spectrum too, isn't she? She announced changes to how people earning over£100 ,000 a year are going to be taxed. Meanwhile, we have Tory shadow Chancellor Andrew Griffith. He's going to be giving a big speech today. What kind of policy announcement should we expect from him? Well, I think what you're going to see from Andrew Griffith is a doubling down on core Tory messages, which is basically get off the back of business, cut welfare, cut taxes.

3:51Those are the big headlines of the Tory pitch to the country, I suppose. And specifically what we're expecting to hear from Andrew Griffith is a load of detailed measures of how he wants to cut bureaucracy that he believes is holding back companies and building new homes, the scrapping of some non-governmental bodies, which he blames for holding back developments as well. Also building a new third runway at Heathrow Airport. So quite a lot of red-blooded deregulatory stuff from Andrew Griffith. We mentioned at the top that Nigel Farage's Reform Party has really taken the spot of being the official right-wing party in the UK.

4:26What are we learning about the Tory party's strategy on winning voters from the right? Yes, you're right that Nigel Farage's Reform UK absolutely annihilated the Conservatives in local elections last year and earlier this year as well. And so they need desperately to come up with a message. Now, for a while, the Conservatives seemed intent on basically sort of going down Nigel Farage's preferred route, which was taking him in on culture wars, on the question of immigration. But I think what we're seeing really from the Conservative Party this week or the start of this week is the Conservatives putting much more of a focus on core Tory themes on the economy.

5:04Now, we will hear stuff about immigration. We will hear stuff about Brexit as well, for sure. But I think you're seeing a switch of emphasis from the Tories. knowing that you can't out-farage farage by talking about immigration all the time. So I think a bit of a switch back to more centre-right ground for Kemi Baden-Ock. I mean, it's interesting. It is a really good moment for her in many ways, but the party is still on this back foot. What would be a win for them? What's the best they can hope for from this conference? Well, they want to be taken seriously. They want to dominate the headlines for two or three days, and they want to put Kemi Baden-Ock up in lights.

5:42Kemi Badenok, all the polling suggests, is more popular than her party. Now, that may not be much of an achievement because you're setting the bar very low there. The Conservative Party is still not very popular. But Kemi Badenok is more popular than her party, and that's allowed her to solidify her grip on the party. So she's probably the Conservative Party's biggest asset. And we should watch out for one of her big announcements on Wednesday when she addresses the conference, something that she hopes will really capture the imagination of the voters. There's been a bit of speculation that maybe she'll announce big cuts or even the abolition of inheritance tax.

6:15So that's a big objective. And then, of course, in the next few weeks, if Kemi Baden-Ott can make some advances, if she can regularly out-poll Reform UK to give themselves a bit of a sense of momentum, then I think they'll regard this conference as having been a success. That's the FT's political editor, George Parker, in Birmingham. Thanks, George. Thank you.

6:41Estonian officials have told the FT that the country is permanently moving troops up to its border with Russia. The country also plans to acquire weapons that would be able to strike targets far into Russian territory. Estonia is on the very edge of NATO's eastern flank, and while military chiefs don't think Moscow wants a full-scale military attack, they do think Russia is preparing for a conflict with the country. As for the plan to move troops to the Estonian-Russian border, Estonia's Ministry of Defense said, quote, credible deterrence requires us to make aggression against us unthinkable.

7:21A major new settlement project is going ahead in the West Bank, backed by the Israeli government. It's called E1, and experts say it would likely eliminate the possibility of a viable Palestinian state. It's no coincidence the push is happening just weeks before the Israeli elections. I'm joined now by the FT's James Shodder to learn more. Hi, James. Hi. James, tell me about this settlement project and what it would mean for the West Bank. So E1 is an area between East Jerusalem and the Israeli settlement of Amal Ademim in the occupied West Bank that Israeli officials for years have wanted to do new settlement construction on, which is illegal under international law.

8:02but they've always held back because of fears of a really strong international backlash. And the reason it's so controversial is because basically it would split the West Bank in two. So it would separate the north of the territory from the south of the territory and would also separate the Palestinian districts of East Jerusalem from the West Bank. And the cumulative effect of those two things would basically be to kill off any last hopes of a contiguous and therefore viable Palestinian state. And this project is being advanced at a time where there's a lot of pressure on Palestinians in the West Bank, both from things that the government's doing, but also from a surge in violence by settlers against Palestinians.

8:43This isn't happening in isolation either, is it? What's the political backdrop here over the last few weeks and months? Well, so basically there's been a rush both by members of Benjamin Netanyahu's government, which has got a lot of powerful ultranationalist settlers in it, and also by settlers themselves to essentially create facts on the ground before the election that make it very difficult for any future government, which is less extreme than the current one, to unpick what the current government has done. And those measures have basically included a drastic acceleration in the approval of settlements.

9:20They've also imposed intense economic pressure on the West Bank, such as withholding tax revenues that they collect on behalf of the Palestinians and rent transfer to them. But for most Palestinians, by far, the worst thing has been the explosion of attacks on them by Jewish settlers. According to the UN, there's been more than 6 ,000 attacks by settlers on Palestinians since this government took office. and a big part of the reason for that is that the government has not only done nothing to stop it but it's also taken steps that make it harder for the security services to deal with violent settlers.

9:53Definitely a difficult set of circumstances to live under. James you mentioned earlier that these settlements are illegal under international law and this aggressive step to split the West Bank in two essentially would sink any hopes of a viable Palestinian state. What kind of international backlash might we see to that? I think a lot depends on who wins the next Israeli election, which is due at the end of this month. Polls suggest that this government is currently far short of being able to win a majority. When the UK announced sanctions on settlements earlier this year, one of the things it cited was the E1 project.

10:33So I think it's definitely possible that if Netanyahu's government remains in power after the election, that other countries could follow suit. But if a more moderate government replaces it, I think there's a good chance that countries will wait and see what it does before imposing further sanctions themselves. James Schotter is the FT's Jerusalem correspondent. Thank you, James. Thanks so much. You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

11:33As 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 Oosten at McKinsey. Sovereignty anchors 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? Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth.

12:16When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts.