Pipeline talks underline Russia’s reliance on China as trade tensions intensify

Today’s top stories

• Claudia Sheinbaum, a close ally of President Andrés Manuel López Obrador, is set to become Mexico’s first female leader after a landslide election victory. The scale of her win unnerved investors who sold the peso in response. The campaign has been the deadliest in recent history.

• Japan’s top carmakers, including Toyota, the world’s largest, were hit by a testing scandal that has forced the suspension of some vehicle shipments.

• Arch-Brexiter Nigel Farage said he would stand as a candidate for Reform UK at the July general election, despite ruling himself out of the race less than a fortnight ago. He will also replace Richard Tice as leader.

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Good evening.

The stalling of a gas pipeline deal from Russia to China has underlined how the war in Ukraine has left Moscow increasingly dependent on economic support from Beijing and cast further doubt on the fortunes of Gazprom, Russia’s once-mighty supplier of gas to Europe.

As the Financial Times reveals today, the pipeline deal has hit a snag over what Russia sees as China’s unreasonable demands on price and supply levels. Approval is desperately needed by Gazprom, which recently announced its biggest loss in decades as gas sales to Europe plummeted, leaving its business model in tatters. The Russian state-run monopoly has been one of the war’s biggest corporate casualties and with Europe having greater success than expected in diversifying away from Russian energy, it faces an uncertain future.

Geopolitical tensions are also reshaping investment strategies in China. As western multinationals and politicians try to break their dependence on the country and limit its role in supplying critical products, Chinese manufacturers are building their presence overseas in countries such as Vietnam and Mexico that offer alternative supply chain routes into the US. The process is likely to gather speed after US President Joe Biden announced fresh tariffs on $18bn-worth of Chinese goods. (If you’re a Premium subscriber and want to read more on the retaliation game between China, the US and the EU, try today’s Trade Secrets newsletter).

Tensions are also affecting stock markets: Chinese fashion group Shein is planning a blockbuster initial public offering in the UK rather than the US after facing opposition from lawmakers in Washington

As our Europe Express newsletter (for Premium subscribers) reports today, China is also under pressure from the EU and Japan, which are teaming up to stop Chinese suppliers further undercutting their clean energy companies. The EU, burnt by its near-total loss of solar manufacturing industry to Chinese competitors, is keen to avoid other sectors such as wind and hydrogen facing the same fate.

Europe and the US meanwhile are still concerned about China’s support for Russia’s war and specifically its supply of dual-use technology, the latest flashpoint being an attempt by a Chinese trade body to buy drone-jamming equipment for Russian buyers.

US deputy Treasury secretary Wally Adeyemo said on Friday that the US and Europe “must make the choice stark” for China. “Chinese firms can either do business in our economies or they can equip Russia’s war machine with dual-use goods,” he added. “They cannot do both.”

Need to know: UK and European economy

New data revealed that a small group of the UK’s wealthiest estates were able to shelter £1.8bn of assets from inheritance tax in 2020-21, reigniting a debate over which types of businesses should receive lucrative relief from the levy.

Campaigning in the UK’s general election continued apace with the ruling Conservatives focusing on issues around gender and the opposition Labour party on defence ahead of a televised leaders’ debate tomorrow. Columnist Stephen Bush says both parties’ policy pledges are increasingly “detached from reality”.

Turkish inflation hit 75.5 per cent as consumer spending remained undeterred by interest rate rises, but the government said it believed price rises had now peaked.

Europe’s gas price hit its highest level this year following an outage at a processing plant in Norway, highlighting the country’s pivotal supply role now that the continent has largely weaned itself off Russian imports.

How will the European parliamentary elections change the EU? Join FT reporters in France, Italy and Germany for a subscriber-exclusive webinar on June 12. Register here for access.

Need to know: global economy

Minneapolis Fed president Neel Kashkari told the FT’s Economics Show podcast that US borrowing costs should stay on hold for an “extended” period to make sure inflation was defeated.

The Opec+ cartel agreed to extend deep cuts in oil production as it battles to shore up prices amid weak global demand and increased supply from other parts of the world.

Indian markets hit record highs after exit polls forecast a landslide election victory for Prime Minister Narendra Modi, who has promised to continue his infrastructure-led economic drive and market-friendly reforms.

The African National Congress began coalition talks after it lost its majority in South Africa’s general election. Depending on which way the ANC jumps, the country could claw its way back on to a recovery path, says the FT editorial board — or go the way of Venezuela. 

For more on the importance of this year’s elections, tune into chief economics commentator Martin Wolf’s new podcast series.

Need to know: business

Shares in GSK tumbled after a US court ruling left the UK drugmaker exposed to jury trials over its allegedly carcinogenic heartburn treatment. Zantac, first approved in 1983, was the first pharmaceutical “blockbuster”, generating more than $1bn in revenue.

Nvidia, the world’s most valuable chipmaker, unveiled “Rubin”, the next generation of its artificial intelligence processor. The company’s market capitalisation has gained $350bn in wildly volatile trading since it reported first-quarter earnings just over a week ago.

Investors are getting excited again about Europe’s tech start-ups. New technology, however, doesn’t always equate with progress: a new book details how Silicon Valley wizardry is helping to launder dirty cash.

London-based digital bank Monzo reported its first annual profit since launching almost a decade ago, thanks to higher interest rates and growth in transaction fees and subscriptions. Despite this, Monzo and its fellow fintech upstarts have failed to unseat the UK’s established banks. A Big Read explains.

The world of work

Do employers really need to show they care about the environment if they want to hold on to younger staff? The evidence increasingly suggests they might, and not just in places such as London, writes columnist Pilita Clark.

Companies face an uphill struggle equipping their staff to keep pace with rapid technological change. Read how they are overcoming the challenge in our Special Report: Upskilling.

Online working has opened a new area in which to feel insecure about our appearance: video calls. Emma Jacobs reports on how professional make-up artists are helping executives keep up appearances.

Employers are increasingly offering “night nannies” as a staff perk. But does the seemingly generous offer increase pressure on new parents to return to work too soon?

Some good news

UK researchers have shown that a new type of liquid biopsy test can predict the recurrence of breast cancer in high-risk patients, months or even years before they relapse.