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Putin’s Pyongyang Pact

Thought for Thursday, strategic agreement signed by Putin and Kim Jong Un, Bill Gates develops his nuclear reactor company, TerraPower, and release of BoE policy rate today.

Thought for Thursday
“It’s fine to celebrate success but it is more important to heed the lessons of failure.” – Bill Gates

Putin’s Pyongyang Pact

Having met in Pyongyang, Vladimir Putin and Kim Jong Un yesterday signed a ‘strategic agreement’ in an effort to bring Russia and North Korea geopolitically and militarily closer.

With Russia’s illegal war in Ukraine putting the Kremlin’s finances under increasing pressure – not to mention the strain put on its military – Putin’s overseas trip is an indication of how Russia is placing ever greater reliance on its allies for assistance.

According to Putin – who last went to North Korea 24 years ago – the pact provides “the provision of mutual assistance in the event of aggression against one of the parties to this agreement”. While it’s unclear exactly what constitutes ‘assistance’, its thought that Russia and North Korea could strengthen defensive cooperation as well as trade and investment.

As the BBC’s China’s correspondent Laura Bicker put it, “if North Korea gets hold of better weapons tech, it frightens US allies in the region. This worries China, which is concerned about an “East Asian NATO” – because it does not want any more US assets such as warships in this region.”

With the North Korea being a pariah of the international financial system and global trade network, Moscow has long supplied Pyongyang with soft and hard commodities either to feed its population or manufacture weapons. However, as the war in Ukraine continues, Russia has looked to North Korea for assistance.

In February of this year for example, South Korea identified that North Korea had sent 6,700 containers of munitions to Russia.

TerraPower

In the US: Bill Gates was in the middle of a field in a mining town in Wyoming this week, ‘breaking ground’. Mr Gates is getting behind small scale nuclear reactors and betting that his company, TerraPower, can deliver smaller, safer nuclear reactors at much lower costs per megawatt than existing nuclear tech.

The fundamental process of nuclear power hasn’t much changed since the 60’s, so it’s no stretch to believe that things can be done better and what the seventh richest man brings to the table is deep enough pockets to be able to experiment, make mistakes and learn along the way so that even if this first plant isn’t as economical as they hope, future plants can be.

His choice of location is interesting – it’s between a mining town and a coal fired power plant, which is due to shut in 2036. With the nuclear plant due to be up and running by 2030 (at the earliest) this could provide an interesting blueprint for transitioning local jobs into a new, green economy.

All Eyes on Threadneedle Street

At 1200 noon today, markets will turn their attention to Threadneedle Street where the Bank of England are expected to maintain their benchmark policy rate at 5.25%.

This would mark the seventh consecutive hold in a row as rates remain at their highest level in 16-years following fourteen hikes in a row.

During the last policy meeting on 9 May, two members of the nine person MPC voted to cut rates by 25bps, an increase from the last policy decision which saw just one member vote to cut.

Since then, however, inflation has been seen to fall to 2%, its lowest level since July 2021, though service price inflation and core inflation remains elevated.

Markets will therefore be looking for forward guidance, as speculation continues to mount on when the BoE will conduct their first cut.

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