Tax Cut Debacle

The UK’s Chancellor of the Exchequer, Kwasi Kwarteng, is privately trying to reassure Conservative Members of Parliament that his tax cuts can fix the UK economy, in a bid to head off a potential rebellion. He has spoken to about 25 MPs in recent days and is confident he will persuade the would-be rebels to back down. Separately, Prime Minister Liz Truss said the controversial decision to cut the highest rate of UK income tax was taken by Kwarteng. She said the government would stick with it despite the market chaos the mini budget unleashed.

Oil Jumps

Oil surged to trade near $82 a barrel on indications the OPEC+ alliance is considering slashing production by more than 1 million barrels a day, in a bid to revive plunging prices. A reduction of that magnitude would be the biggest since the pandemic. A final decision on the size of the cuts won’t be made until ministers gather in Vienna on Wednesday. A large output cut may draw criticism from the US and other major consuming-nations, where energy-driven inflation has forced central banks to aggressively jack up interest rates. 

Putin´s Goals at Risk

A new operational defeat for Russia’s forces — this time in a strategic eastern Ukrainian town — casts further doubt on the “forever” annexation of four occupied regions by President Vladimir Putin. Several thousand Russian troops withdrew from Lyman in Donetsk province over the weekend. Controlling Ukraine’s Donbas region, made up of the Donetsk and Luhansk provinces, was a stated goal of Putin’s “special military operation” when Russian forces invaded in February. Since calling up 300,000 reservists to fight almost two weeks ago, hundreds of thousands of draft-age Russian men are believed to have fled the country.

Credit Suisse Concern

Credit Suisse’s new chief has asked investors for less than 100 days to deliver a new turnaround strategy. Turbulent markets are making that feel like a long time. The cost of insuring the firm’s bonds against default climbed about 15% last week to levels not seen since 2009, as shares touched a new record low. Chief Executive Officer Ulrich Koerner reassured staff last week that the bank has a “strong capital base and liquidity position” and told employees that he will be sending them a regular update until the firm announces a new strategic plan on Oct. 27. Credit Suisse’s market capitalization dropped to around 10 billion Swiss francs, meaning any share sale would be highly dilutive to longtime holders. 

Coming up…

European stocks are on track for declines after futures fell more than 2% during Asian trading hours, amid concerns over economic turmoil in the UK and the challenges faced by Credit Suisse. Germany’s Hella is going ex-dividend on Monday. Expected data include manufacturing PMIs from Sweden, Netherlands, Italy, Germany and the UK. Aryzta is set to report earnings or sales updates.

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(Source: Bloomberg, Oct. 3-2022)