On the Line

The Bank of England told lenders it was prepared to extend its emergency bond-buying program past the Oct. 14 end date if market conditions demanded it, the Financial Times reported, citing three unidentified people briefed on the discussions. The report came after Governor Andrew Bailey put the Bank’s credibility on the line with a pledge to end emergency gilt purchases as scheduled, driving investors to dump UK asset. Sterling reversed its decline on FT’s report and rose. The BOE has already seen its credibility called into question after a lackluster initial response to rocketing inflation. 

Game Plan

President Joe Biden said the US has gamed out responses if Russian President Vladimir Putin uses a nuclear weapon in Ukraine. “The Pentagon didn’t have to be asked,” Biden said in an interview Tuesday with CNN, in response to a question about whether he’d directed the Defense Department to come up with contingencies. The president declined to elaborate on the discussions, saying it would be irresponsible “to talk about what we would or wouldn’t do.” Biden and his allies are facing renewed pressure to supply Ukraine with sophisticated weaponry they have thus far been reluctant to provide, following Russia’s steps to escalate the war. 

Gas Price Cap

The European Union is moving closer to proposing a temporary overhaul of the electricity market by limiting prices of gas used for power generation even as pressure mounts for the bloc to impose a broader cap. EU energy ministers gathering in Prague on Wednesday will consider that model, which has already been adopted by Spain and Portugal, allowing consumers to avoid the worst of the price surges. However, some nations remain skeptical, fearing a cap could spur demand at a time when the EU needs to curb its thirst for Russian gas. Germany and the Netherlands plan to put forward a multi-pronged approach to help bring down energy costs in the region. With winter approaching, time is running out to reconcile those differences.

The Fed´s Path

Federal Reserve Bank of Cleveland President Loretta Mester said the central bank should stick with its approach to shrinking its massive balance sheet, notwithstanding ongoing volatility in financial markets. “I don’t see any need at the moment to adjust that plan. I think there is a lot of benefit to leaving that plan in place,” Mester said Tuesday during an interview with Kathleen Hays on Bloomberg Television. The Fed since September has been allowing its holdings of Treasuries and mortgage-backed securities to mature at a monthly pace of up to $95 billion. Meanwhile, President Joe Biden said a recession in the US is possible but that any downturn would be “very slight”.

Investigating Credit Suisse

The US Justice Department is investigating whether Credit Suisse continued to help US clients hide assets from authorities, eight years after the bank paid a $2.6 billion tax-evasion settlement and pledged to tackle the issue. Investigators are examining whether the bank aided US account holders, particularly with South American passports, who may not have told the Internal Revenue Service about assets totaling hundreds of millions of dollars. Credit Suisse’s main banking unit pleaded guilty in 2014 and the deal back then required it to close “any and all” US accounts not declared to the IRS. Meanwhile, a lawyer accused the bank as being part of a “conspiracy network” focused on rigging the foreign exchange market during a trial session in the US.

Coming Up…

European stocks are set for declines as worries over recession risks and interest rates continue. Investors will be poring over minutes from the most recent FOMC meeting for clues on the Fed’s outlook. The IMF publishes its Fiscal Monitor report. Germany and the Netherlands unveil a multi-pronged approach to help cut EU energy costs before a meeting of ministers in Prague. ECB’s Christine Lagarde gives remarks, while the Fed’s Michelle Bowman and Neel Kashkari also speak. Expected data include US PPI, as well as GDP, trade balance and manufacturing production from the UK. Chr. Hansen, CropEnergies and PepsiCo deliver earnings.

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(Source: Bloomberg, Oct. 12-2022)