US prepared for protracted stalemate with Iran

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0:32Good morning from the Financial Times. Today is Friday, October 23rd. This is your FT News Briefing. Global stocks are ending the week on a deeply sour note, and Brazil gears up for the final round of its presidential election. Plus, Trump's ambassador to the UN is prepared for the Iran war to continue for a while. I'm Mark Filippino, and here's the news you need to start your day.

1:07There is a very specific word that comes to mind to describe what happened in markets on Thursday, but we are a family show here at the FT News Briefing, so I will just say that it was bad. Very, very bad. Let's start with oil. Brent crude jumped yesterday to above$113 a barrel. Meanwhile, the riskier parts of the European bond market sold off. So did European and U.S. stocks. The NASDAQ 100 closed down nearly 3%. So what spooked investors? Meta. The big tech company reported earnings on Wednesday and said that it needs to raise quote hundreds of billions of dollars over the next several years to fund its bet on artificial intelligence.

1:46Meanwhile, there seems to be one part of the market that investors feel safe in. U.S. Treasuries. Yields on the 10-year T-note dropped below 5 % yesterday for the first time in over a month.

2:02In a year chock full of elections, Brazil's presidential race is an important one to watch. Brazil is home to one of the world's largest democracies. And in the first round of voting, incumbent Luiz Inácio Lula da Silva lost out to Flavio Bolsonaro. That name sound familiar? and he's the son of the former president, Jair Bolsonaro, who's now in jail. The second round of voting starts on Sunday, and the FT's Michael Pooler tells me things are very different from a couple of weeks ago. The biggest change we've seen is that the Lula campaign has sought to overhaul its digital strategy. They realized that they were really behind the right wing and Bolsonaro when it came to connecting with people on social media.

2:43So they've made a really big push there, and that's involved Lula, who is an 80-year-old starting to do things like selfie videos, which he'd never done before. The other tactic Lula's campaign is taking? Stoking fears about his opponent's economic plans. Flavio Bolsonaro has said he's going to cut about 2 % of GDP in government spending as a way to lower the very high public debt and interest rates. But Lula's supporters say that this is going to fall onto social programs and welfare spending and public services, something that Bolsonaro denies, but due to the lack of details in his plans, the Lula campaign has really tried to capitalize on that.

3:19Will that be enough to sway voters? Most of the first round polls projected Lula to win, but Bolsonaro ended up with 47 % of the votes. To a large extent, Flavio Bolsonaro has ridden on the coattails of his father. But at the same time, there's a lot of discontent over the cost of living. People are concerned about security and the rise of drug gangs. And it feels that this was really a vote for change. Lula is serving his third non-consecutive term as president of Brazil. So a lot of people read into Flavio Bolsonaro's strong performance in the first round as a desire for change and something new.

3:52So it does look like it could be quite a close-run thing. We'll have more on the results next week. That's the FT's Brazil Bureau Chief Michael Pooler.

4:07The U.S. is prepared for a protracted conflict with Iran. That's what President Donald Trump's ambassador to the U.N. told the FT. Our U.S. foreign affairs correspondent, Abigail Houseloaner, sat down with Mike Waltz to talk about the trajectory of the war. Abby, thanks for joining me. Thanks for having me. So why did you want to talk to Mike Waltz? The reason I wanted to interview Waltz is because he had been briefly Trump's national security advisor. You may remember Signalgate that got Waltz fired last year. He set up a signal chat with all of the top administration national security officials to discuss and debate basically war plans against the Houthi militants in Yemen.

4:53And he inadvertently included a journalist on this from The Atlantic. I also knew Waltz when he was a congressman. He was sort of known for being a little more hawkish, a little middle of the road. And he also is a veteran. He served in Afghanistan. And so I wanted to ask him about the Iran War and how he felt it was going, what the mission is. Yeah, what did he say? When I asked him what the strategic objective is there. Now, remember, we're eight months into this war that Trump said would last for four to five weeks initially. He actually didn't bring up the Strait of Hormuz or global energy prices, which is what the Trump administration is very focused on now because the war has triggered an energy crisis.

5:39He said the president's been very clear and the goal is for Iran not to have a nuclear weapon. So, of course, as we know, we have not seen any agreement even eight months into the war. And so I also asked him, you know, how long this goes on for and if the current stalemate that we're in could still be in place a year from now. And he declined to rule that out, but basically said that the U.S. is prepared to keep this up for the long haul. The president and the U.S. Navy can maintain this blockade for the foreseeable future. The maximum pressure campaign is only tightening. The regime continues to suffer under the pressure.

6:25And I think that that is something that might be rather alarming to Americans who are currently grappling with high prices and the sort of economic fallout from this. What do you make of Walta's message that the war in Iran could go on for a fair amount of time, just two weeks before the midterms? It's clear, I think, to everyone by this point that when the president says the U.S. is very close to a deal, that does not necessarily mean anything. We've been in this sort of Groundhog Day scenario for months where we've watched the cycle unfold of threats from the U.S. president. They're tightening economic pressure.

7:09They're close to a deal. They're talking. And now they're going to threaten again or bomb again. And what we've been hearing from Iran experts and people close to the regime all along is that this is a regime in an existential battle for its own survival. And they do not appear to be signaling that they are any closer to being willing to make concessions to the United States. And I think we're increasingly starting to hear from administration officials who are not Trump, who recognize, like Waltz, that they're not in a position to put an end date on this. That's the FT's U.S. Foreign Affairs correspondent, Abigail Hausloener.

7:51Thank you so much for sharing your conversation with U.S. Ambassador to the United Nations, Mike Waltz. Thank you.

8:02Western drug companies are turning to China to run clinical trials. AstraZeneca, SANA Biotechnology, and Tempest Therapeutics love how quickly things move there, but these studies don't come without safety concerns. The FT's Eleanor Alcott has been reporting on this. Hi, Eleanor. Hi, Mark. So you wrote that more and more Western pharmaceutical companies are turning to China for these trials instead of places closer to them, like the US and the UK. What's behind this transition? So previously, China was just not considered a place that companies would want to run IIT trials. IIT being investigator-initiated trials.

8:40So these are small-scale, early-stage studies which test experimental therapies. China's become a very attractive place to run these trials because it has a very favorable regulatory ecosystem for these experimental drugs. And also, more importantly, it has an absolutely enormous population. And a lot of these populations don't have access to top class medical care, so are very willing to go on these kind of experimental trials. And how beneficial has this been to the pharmaceutical companies? It's really helpful, right? Because increasingly, we're getting to a place in modern medicine where we're tackling issues that affect a very small number of people.

9:23You know, it may take half a year, a year to find enough patients in a London hospital. But in China, it's just much quicker to launch these things. And if we're thinking about the longevity of biotech companies, time is money. So the fact that they can launch these trials more quickly in China is incredibly significant because they can get these drugs into patients and see whether or not it's worth pursuing a further clinical trial. Okay, but when things move quickly, doesn't that come with some risks? That's a very good question. I mean, there's a number of different advantages on the surface, right?

10:02I mean, these patients have got rare genetic diseases maybe or don't have great medical care. And in a case where someone has a terminal illness and they are willing consenting participant in the trial, then the general consensus is that that's justified. The problem here is that some hospitals have had very sketchy approaches to those consent forms, and maybe they haven't been incentivized to kind of provide the full round of treatments available before going to that trial. But China started to kind of tighten the rules to resolve that issue. Eleanor, what does this whole story tell us about China's industrial strategy?

10:42I think the big story here is that China used to be a place that you outsource like pretty basic biotech stuff, right? Initially, it was just the basic ingredients of the drugs, and then they started to go further up the chain. What we're seeing here now is like the very source of innovation. And we see this time and time again. China initially is just the place that you might get the little widget that you put in your car and then they start making the car. Oh, now they've got their own car brands. So they are becoming more and more critical to this overall industry. Eleanor Olcott is the FT's China tech correspondent.

11:20Thanks so much, Eleanor. Thanks, Mark.

11:27The UK budget is just days away, and banks are wondering whether Labour Chancellor John Healy will raise taxes on their profits. Healy recently dropped some pretty big hints that he's thinking about it. DFT's Hortensa Alleya joins me now from London to discuss. Hey, Hortensa. Hi, thanks for having me. So, Hortensa, what exactly is Healy considering, and why is he considering it? OK, so first of all, we don't know exactly. But what we have reported and what we think is going to happen is that Healy is going to increase what's called the surcharge tax on profits. And that means that banks which currently have to pay a 3 % surcharge tax on profits above 100 million that are made in the UK could potentially see that go up to 8%.

12:12What this would do is reverse effectively the tax break that Rishi Sunak, the former conservative prime minister, who has now gone back to his home of Goldman Sachs, did for the banks in 2021. And Healy will either go the full hog and go to 8%, or he might decide that actually 5 % or 6 % is enough. But the idea is that this is a sector that can be squeezed a little bit more, at least from the view of the government. Yeah, I was going to say the banks are probably not thrilled about this whole thing, huh? Yeah, surprisingly, the banks disagree and think they shouldn't be taxed more because they already pay so much tax.

12:49So yes, you know, there's definitely been a lot of lobbying by the banks. The financial industry is the crown jewel of London and of the UK. And as it's come out of the financial crisis, which of course now is almost 20 years ago, banks have recovered, but they've recovered much, much later than their US counterparts. arts. So I think the fair argument that banks make is, if you do this, it makes us less competitive in a market where we already struggle because of these behemoths from the US. On the other side of that argument is the fact that, well, if you are making so much money, it's only fair that you give some of that back.

13:26The real question is, how does this affect banks in the UK versus international banks? And the argument is that it's disadvantageous and it makes British banks less competitive. And I think there is something to that. Do you think that banks would skip town if they're taxed more? No, is the short answer. I mean, yeah, it's just not, you know, that's not a threat that can be made or that really exists. The thought of something like NatWest or Lloyd's, which makes vast amounts of its profits in the UK and provides the vast amount of mortgages here, you know, no, they're not going to leave. Does a JP Morgan or a Morgan Stanley or a Goldman Sachs decide to move more of their bankers elsewhere or decide to stop investing in the UK.

14:12But still, London as a financial center, I think, will remain the case even after this. But you do, you know, you have to do a little bit of fear mongering if you're lobbying to not have something happen. Wouldn't be a budget without it, right? Exactly. Hortensa Aliyei is the FT's banking editor. Thanks so much, Hortensa. Thank you. You can read more on all these stories for free when you click the links on our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing is produced by Safia Ahmed, Sonia Hudson, and Josh Gabartonio.

14:43I'm your editor, Mark Filippino. Our video producer is Zachary Alfred. Our show is mixed by Alex Higgins, Kelly Gary, and Sam Giovinco. We get help from Peter Barber, Vanessa Brown, Michael Lello, David Da Silva, and Gavin Coleman. Our executive producer is Topher Forhez. Flo Phillips is the FT's global head of audio. And our theme song is By Metaphor Music.

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