Pointing Finger

Chancellor of the Exchequer Kwasi Kwarteng and the British government are preparing to make Bank of England chief Andrew Bailey a scapegoat if UK markets suffer renewed volatility after the bank’s bond-buying program ends on Friday. Speaking on the sidelines of the International Monetary Fund’s annual meetings in Washington, Kwarteng told Sky News that any turmoil after the central bank withdraws support  “is a matter for the governor.” The moves by UK pension funds to dump assets to meet margin calls have contributed to the selling pressure in recent days and the reverberations are being felt everywhere from Sydney to Frankfurt and to New York.

Inflation Priority

Treasury Secretary Janet Yellen said that while there’s a collective need to shore up the global economic outlook, the “path forward” begins with addressing domestic challenges. “In the United States, our top economic priority is to bring down inflation while maintaining a strong labor market,” Yellen said. Investors are currently on tenterhooks as they await US consumer price figures later Thursday that may determine if the Federal Reserve will deliver a fourth-straight outsized hike in interest rates. Minutes from the Fed’s Sept. 20-21 gathering show that the officials are committed to raising interest rates to a restrictive level in the near term and holding them there to curb inflation.

Russia Oil Cap

Some Biden administration officials are growing concerned that their plan to cap the price of oil purchased from Russia may backfire after the OPEC+ alliance’s surprise production cut last week. The plan seeks to keep enough Russian supplies on the global market to stave off a spike in worldwide oil prices, but the proposal has been the subject of intense diplomacy with European allies. The Biden administration is also considering a complete ban on Russian aluminum — long shielded from sanctions due to its importance in everything from automobiles and skyscrapers to iPhones.

ECB Rate

The European Central Bank can get close to its neutral level of interest rate by the end the year if it hikes by a total of 125 basis points at its next two meetings, according to Governing Council member Robert Holzmann. After increasing borrowing costs by 75 basis points on Oct. 27, “another 75 then perhaps in December — even 50 — we would be close where the neutral rate would be,” the Austrian central bank chief told CNBC Europe in Washington on Wednesday. That level would mean that monetary policy neither constricts nor stimulates and would then allow the ECB to think about unwinding its bond holdings, Holzmann said, adding that a possible mild recession in the euro area won’t derail the ECB’s tightening plans.

Angry Motorists

French motorists faced long lines at service stations across the country, as a government threat to break blockades at some of the biggest fuel depots did little to end weeks-long refinery strikes over pay. In the latest effort to end the deadlock, French energy giant TotalEnergies agreed to meet with labor unions on Wednesday, including the CGT, relenting on a previous stance that the union halt its walkout that’s affecting many of the country’s refineries. The walkouts have left almost a third of the country’s gas stations with supply shortfalls as the CGT union spearheads a demand for higher wages amid soaring inflation. For French people, the crisis has hit hard, coming on top of higher prices for food and other staples. 

Coming Up…

European equity futures nudged lower ahead of highly anticipated US inflation figures, the last major data release before Fed officials meet next month. Germany, Ireland, Portugal and Sweden also deliver CPI prints. G-20 finance ministers and central bankers meet in Washington. Italy’s newly elected parliament convenes for the first time. BlackRock, Suedzucker and Tryg report earnings.

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(Source: Bloomberg, Oct. 13-2022)