Zelenskyy says Putin’s gloves are off

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0:32Good morning from the Financial Times. Today is Friday, October 2nd, and this is your FT News Briefing. Ukraine is worried about the war entering a new phase, and Andy Burnham is pushing forward with his focus on buying Britain. Plus, Brazil kicks off its presidential election this weekend with some familiar faces. I'm Mark Filippino, and here's the news you need to start your day.

1:07Russian President Vladimir Putin is asking his generals to go after civilian targets. That's what Ukrainian President Vladimir Zelensky told the FT based on intelligence intercepted by Kiev. Here to tell us more about his interview with Zelensky is the FT's Chris Miller. Hi, Chris. Hey, Mark. Chris, share more about what you and Zelensky talked about. So I met Volodymyr Zelensky at the site of a Russian jet drone attack at a school here in Kiev. And we spoke about what's been happening over the last few weeks, which is a really serious escalation on the part of Russia and specifically an escalation in its air attacks.

1:47And so, you know, he was saying that his concern is that Putin has essentially ordered his military to take the gloves off. Take the gloves off. What does that look like? So what he was explaining to me was that his Ukrainian intelligence agencies have new intel saying that the Russian president has ordered his military to ramp up attacks on civilian infrastructure in particular, striking schools, hospitals, telecoms, and data centers. And Zelensky says this is different because, you know, for the last many months, the Russians, as bad as their attacks have been, and they have been bad, they've been sort of sticking to what Zelensky described to me as the kind of rules of war.

2:34You know, striking energy infrastructure, other critical infrastructure, military targets. And he said that his Ukrainian forces have been doing the same in kind. But now he is saying that Russian generals have been ordered to strike at the heart of Ukraine's capital and to essentially sow terror among the civilian population. How does Zelensky and Ukraine hope to prepare against this type of warfare? You know, earlier this year, the tide seemed to be turning in Ukraine's favor in some ways. They had ramped up the production of their deep strike drones. But what we're seeing is that there's also a technology race happening.

3:12And the side that has the upper hand tends to be the one who innovates the fastest. And that happened to be Ukraine for the first half of this year. But Russia, with these new jet-powered drones, has sort of taken back over. And Ukraine hasn't figured out yet a great way to stop them. It also faces a challenge in intercepting Russia's ballistic missiles because there's a global shortage of American-made Patriot interceptor missiles. So he views this as, you know, a really critical moment. Chris, throughout this war, Ukraine has really relied heavily on Western allies for support. Given the ballooning cost of debt in these countries, do Zelensky and Ukraine have to prepare to, I don't know, go it alone a bit?

3:58They certainly are preparing for that. He's just not sure that the West has the ability, the financing, and maybe most importantly, is lacking the political will to help his country win. And he was very careful to not name names, but I had brought up Donald Trump because they had just met at the UN in New York. And, you know, he said there haven't been many fresh ideas on the U.S. side as to how to bring the Russians to the negotiating table. And what Zelensky was saying is that he's certain that Putin doesn't want to end the war. And the only way to get him to do so is to apply a whole lot more pressure.

4:39And he doesn't see right now his Western partners ready and willing to apply the necessary pressure to get Putin to stop. Chris Miller is the FT's Ukraine correspondent. Thanks so much for this story, Chris. My pleasure.

4:58Look, I'm running out of ways to say that the bond market is a mess. The war in Iran, rising inflation and ballooning government debt have caused a global sell-off. This time, I'm going to focus on the pain going on in the Eurozone. Yesterday, we saw the yield on the French 10-year rise to its highest level since 2002. Italy's 10-year jumped as well, up 0.5 percentage points. And over in the UK, 30-year gilt yields rose to above 6%. That is the highest level since 1998. This all follows a sell-off in U.S. treasuries. And as we noted earlier when talking about Ukraine, the surge in yields is making things tough for everyone.

5:36It's raising borrowing costs for governments, consumers, and businesses.

5:46The U.S. Treasury has designated the Kremlin-backed fintech company A7 as a transnational criminal organization. The payments group is accused of helping Iran and others evade Western sanctions. The FT revealed last month how A7 relied on a vast document forgery operation to move billions of dollars through the international financial system. The move by the Treasury yesterday would freeze any assets held by the company in the U.S. It would also prohibit Americans from doing business with A7 or any front companies acting on its behalf.

6:23The U.K. government is searching for a British alternative to Palantir. That's what people familiar with the matter told the FT. The controversial U.S. software company has contracts with the NHS and the Ministry of Defense, but actually replacing Palantir could be tough. I'm joined now by the FT's Chris Smythe, who helped break the story. Hi, Chris. Hi, Mark. So, Chris, tell me about the government's thinking here. Why are they looking for a replacement at all? Palantir has a very big contract with Britain's National Health Service for data analytics and management. And there was already a review of that contract under the previous government led by Keir Starmer ahead of a break clause next year.

7:00But that has taken a new urgency under new Prime Minister Andy Burnham, who has made a focus on buying British a key theme of his government. He says he wants to see public money spent more in this country supporting British jobs. Now, there is a particular concern also about Palantir, the company itself. is a target of progressive anger around the world, and particularly in Britain, for its links to the Trump administration, their immigration crackdown, and to the Israeli government and their actions in Gaza. So ministers in Britain are thinking, is this company absolutely necessary? And does its sort of toxic reputation in some parts of the left get in the way of their wider goals in both the NHS and technology more generally?

7:42Now, you spoke to some people about alternatives, right? What options does the government have here? So we don't know all of the companies that they are looking at, but one of them, for example, we're pretty sure is Quantexa, which was in the running for the NHS contract in 2023. three. And the question is, are they capable of being a replacement for Palantir? There are some who worked in the NHS, overseen this programme that would say, well, no, I mean, Palantir have proven themselves competent. Replacing them with an untested alternative would be pretty risky at a time when, you know, it is pretty important to make better use of health data.

8:18So part of what I think the government is trying to do at the moment is really work out how practically feasible it would be to replace Palantir, which is why one of the options they are looking at is offering a temporary extension to Palantir while British alternative builds up capacity to minimize the risks of an abrupt transition. It feels a lot like the devil you know versus the devil you don't. Yeah, exactly. And I guess it also partly comes down to a political question as to which devil you think is more scary. And the concern is that the political backlash against the company may undermine the wider government goals.

8:53And that is weighing on people's thinking within government. Chris, what did Palantir say when you reached out for comment? So Palantir, when we asked them, they pointed out to the results they're getting. They say it's used by many NHS trusts, but many of them like it. They say it is improving care, reducing waiting times and improving efficiency. And they also make the point that one in six of their workforce globally are based in Britain, which is a point made by some within the Labour Party, actually. why should they not be considered a British company? You know, Andy Burnham's test is about supporting British jobs.

9:26So on that measure, they could say, well, they should qualify. And we should say that the Department of Health didn't immediately respond to the FT's request for comment. More broadly, though, what does the debate tell us about the relationship between the government and American big tech, especially under the Trump administration? Well, there's always been a suspicion of America and especially American big tech on the left in Europe. and that has only intensified under the Trump administration, which has been pretty brunt about its America First approach. There have been restrictions on what overseas companies, including allies in Europe, are allowed to use.

10:01And so Britain is not alone in looking for alternatives. France and Germany have recently terminated some public contracts with Palantir. And you combine that generalised concern about the Trump administration with a specific concern about Palantir, whose founders have been extremely outspoken about their political views and does have several high-profile contracts, both with the Trump administration and with the Israeli government. And you can see why the Labour government in Britain is pretty concerned about the progressive backlash against these kind of deals. Chris Smyth is the FT's public policy editor.

10:37Thanks so much, Chris. Thanks, Mark.

10:45Brazilian voters head to the polls this Sunday. It's expected to be a very tight presidential race. The election pits two familiar names against each other, current President Luiz Inacio Lula da Silva and Flavio Bolsonaro, the son of the former President Jair Bolsonaro. Here to speak with us about it is the FT's Latin America editor, Jeff Dyer. Hi, Jeff. Hi, Hayden. I'm doing well. So, Jeff, listeners will be familiar with the Bolsonaro name, but probably less familiar with Flavio. What should we know about him and his campaign? He's Jair Bolsonaro's eldest son. He's 45-year-old. He's a senator from Rio de Janeiro State.

11:20And he's running because Jair Bolsonaro is in prison. He was convicted for 27 years in prison for plotting a coup after he narrowly lost the previous election in 2022 to Lula. As a result, he nominated Flavio to be his successor. and Flávia has picked up the baton since then. Yeah, and this is kind of like a redemption election for the Bolsonaros. What have been the main points of contention so far in this race? It's been a low-energy, high-stakes election. Brazilians are quite depressed about the options, but the stakes are very high. There are a lot of key issues. Crime, foreign policy, and the environment would be the main ones.

11:59Flávia Bolsonaro is promising a much tougher attitude toward organized crime with a lot of encouragement from the Trump administration. He is more broadly promising to be much more favorable to the U.S. and to work more closely with the Trump administration. And then the environment to be a huge issue. Under Jai O. Bolsonaro's presidency, deforestation in the Amazon picked up quite aggressively. That has come down a lot under Lula. So that would be another thing that's very much at stake in this election. So you mentioned foreign policy. You mentioned deforestation. What about the economy? How is that playing out in this election?

12:31If you look at the headline economic indicators, then Lula should be in a very strong position. Unemployment is extremely low. Inflation has largely been brought under control and incomes have risen in Lula's third term. However, voters don't feel so good about the economy. And that's partly because debt levels are rising and interest rates are very high. So what would happen, depending on who wins, Lula would likely be. He would have to continue the same sorts of economic policies, a lot of emphasis on the social programs that he's pioneered as a politician. Flavio Bolsonaro is promising big spending cuts, which are the route to reducing interest rates, which would both help people with their personal debts and also open up more space in the budget to spend on other things.

13:12You wouldn't have to spend quite so much money on interest payments. But amongst investors, there's not a lot of confidence that Flavio Bolsonaro would actually be able to reduce spending that much. Congress is very powerful, and it has a lot of say over public spending. And so it's not so clear that he would be able to really implement the big budget cuts that he's talking about. Jeff, we should mention that while the election kicks off on Sunday, it actually goes for a couple of weeks. What are you watching out for as the election gets underway? You say it's a two-round system. There are 12 candidates who will be on the ballot on Sunday.

13:45If one of the candidates gets over 50 % of the vote, then they automatically win, immediately win. If not, then the two top two candidates go to the second round. If it does go to the second round, the polls have it looking like it's going to be very, very close. They essentially have it as a 50-50 race. So we've been focusing solely on Brazil here, Jeff, but this could have implications for the region, right? Absolutely. You've seen a whole bunch of elections in the last two years since Donald Trump came back into office, It's where right-wing candidates and often very, very Trump-friendly right-wing candidates have won.

14:18If Flavio Bolsonaro wins this election, then almost all of South America would be under Trump-friendly right-wing governments. So if Bolsonaro were to win and you did have this right-wing wave across the region, it would give a big push to the Trump administration and its policy of having a much more militarized approach towards going after drug gangs and drug cartels across the region. Jeff Dyer is the FT's Latin America editor. Thanks so much, Jeff. Thank you. 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.

14:50Check back next week for the latest business news. The FT News Briefing is produced by Safia Ahmed, Sonia Hudson, and Josh Gabard-Doyon. I'm your editor, Mark Filippino. Our show is mixed by Kelly Gary and Sam Giovinco. We get help from Peter Barber, Michael Lello, David Da Silva, and Gavin Coleman. Our executive producer is Topher Forres. Flo Phillips is the FT's global head of audio. And our theme song is by Metaphor Music.

15:26The new episode of The Next Five is all about the freedom to invent with AI. Steve Tarza at Amazon joins me. I think there's such a huge opportunity for innovation. As does Jim Rowan at Deloitte. We see that when the C-suite is using AI, they get their teams on board as well. And Seth Fox at S &P Global. Our data is our crown jewels. We have to draw a bit of a line around the data, but not around the idea. Listen to The Next Five wherever you get your podcasts. Enjoy. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio.

16:14Listen at schwapp.com slash Washington Wise.