Old Friends’ Reunion

Russian President Vladimir Putin told Chinese leader Xi Jinping he understands Beijing’s “questions and concerns” about his invasion of Ukraine, a rare admission of tensions between the diplomatic allies. In their first in-person talks since the war began, Putin hailed “the balanced position of our Chinese friends on the Ukraine crisis” and offered to “explain in detail our position.” Calling Putin an “old friend,” Xi said “China is willing to work with Russia, display the responsibilities of the major powers and play a leading role to inject stability and positive energy to a world in chaos.” Yet Xi may continue to withhold material support as Putin suffers humiliating battlefield losses. 

Historic Takeover

Germany is in advanced talks to take over Uniper and two other large gas importers in a historic step to avoid a collapse of its energy market, according to people familiar with the matter. State ownership of Uniper, VNG and Securing Energy for Europe is the main solution under discussion. The government is considering buying Fortum Oyj’s controlling stake in Uniper for a nominal price and would then inject billions of euros into the company through a capital increase. Surging gas prices and Moscow’s move to squeeze supplies to Europe have already prompted a series of government bailouts and rescue loans, but those measures are increasingly dwarfed by the scale of the crisis.

The Guessing Game

Federal Reserve officials could find reasons for raising rates by a full percentage point next week if they decide to look hard enough though the base case still looks like 75 basis points. While most economists see the smaller — but still aggressive — hike as the most likely outcome of the central bank’s meeting, a blockbuster move is not a zero risk in the aftermath of a hot reading on August core consumer inflation. Investors ascribe around 24% odds it could happen, according to pricing in interest-rate futures. Ramping up the size of tightening at this month’s meeting would send a powerful message to markets, which have at times in the past few months frustrated officials.

Cutting Consumption

The French government just drastically stepped up its target to reduce energy consumption this winter and avoid energy outages in an apparent bid to shake up public awareness. Prime Minister Elisabeth Borne urged households, businesses and local and national authorities to cut their power use by 10% compared to last year, according to a presentation sent to reporters following a press conference. Emmanuel Macron’s government had previously put forward a target to reduce consumption by that amount within two years. Meanwhile, the country’s central bank slashed next year’s economic-growth forecast and raised its inflation outlook, painting a much bleaker picture of the outlook than the government.

Coming Up…

European equities are on track to follow their Asian and US peers lower as investors assessed fresh China data as well as the Fed’s rate path. ECB’s Olli Rehn speaks at a conference. NATO military chiefs meet in Estonia. Expected data include Euro area CPI, Italy trade balance and UK retail sales. University of Michigan consumer sentiment figures will also be monitored for any hints on the inflation outlook. Juventus reports on an otherwise soft day for corporate results.

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(Source: Bloomberg Sept. 16-2022)