Energy Rationing 

Europe faces the risk of blackouts, rationing and a severe recession if Russia further slashes gas deliveries, and the next reality check is at hand. A three-day halt of the Nord Stream pipeline, a key source of natural gas for the European Union, starts on Wednesday, and concerns are widespread that Moscow will find another excuse to clamp down on supplies. Hours ahead of the outage, Gazprom notified French utility Engie it would halt deliveries from Thursday because of a disagreement over payments.

Losing Confidence

Rishi Sunak, the underdog in the UK Conservative leadership race, has warned that the next prime minister faces the risk of markets losing confidence in Britain’s economy. His opponent Liz Truss, who is widely expected to win the race to No. 10 next Monday, has said she would swiftly implement a series of tax cuts and other support for households. But in an interview with the Financial Times, Sunak said he “struggled to see” how Truss’s tax and spending commitments “add up,” warning it would be “complacent and irresponsible” for the next PM “not to be thinking about the risks to the public finances.” Inflation in UK shops is at a record, and pubs are warning of going bust under severe price pressures.

RIP Gorbachev

Mikhail Gorbachev, the leader of the Soviet Union whose attempts to shake up his country’s political and economic system led to the collapse of the Communist superpower and the end of the Cold War, has died at 91. Gorbachev pushed for radical changes to the Soviet economy after he became Communist Party leader in 1985 at age 54. His overhaul, known as perestroika, and policy of openness, or glasnost, unleashed a political avalanche that brought down the Berlin Wall in 1989 and ended Soviet rule two years later. Gorbachev’s career disintegrated in the process, leaving him a bystander to Russia’s political and economic evolution. In a farewell address delivered on national television on Dec. 25, 1991, the day the Soviet Union and his presidency were officially dissolved, Gorbachev said he had no regrets.

Rule for Life

President Xi Jinping appears set to win a precedent-breaking third term in office at a twice-a-decade Communist Party congress in October. But that doesn’t mean he’ll rule China for life. The Chinese leader’s ambitions to extend his time in power became clear in 2018, when the party dismantled the constitution’s two-term limit for the presidency. That cleared the way for him to take another five years as general secretary at the coming party congress in October. To keep his post beyond 2027, he’ll need to keep securing five-year terms under the current rules. That’s as the country deals with a slowing economy, growing geopolitical tensions and the rise of ambitious, younger cadres. And the longer Xi stays on, the greater the risks may become to avoid a messy leadership transition when he does leave.

Coming Up…

European stocks are set to advance after Asian shares slid as investors assessed the Fed’s rate path and Chinese economic data. Riksbank Deputy Governor Anna Breman speaks at a seminar about the Swedish economy. Regional Fed Presidents Loretta Mester and Raphael Bostic deliver remarks at separate events. Expected data include euro-area CPI and GDP from countries including Finland and Denmark. BioMerieux and Brown-Forman are among companies scheduled to report earnings

—————————————–

(Source: Bloomberg, August 31-2022)