Waiting for U-Turns

The pound rose as much as 0.9% in Asian trading as investor confidence was bolstered by expectations that more of Prime Minister Liz Truss’s package of unfunded tax cuts may be reversed. The newly appointed Chancellor of the Exchequer Jeremy Hunt said in a BBC interview that nothing was “off the table” when it came to potentially abandoning more of the premier’s planned measures. Still, the pound remains vulnerable and the end of the Bank of England’s emergency bond-buying program on Friday could risk further ructions in gilts. While markets will be testing beleaguered Truss, her fate ultimately rests with a Conservative Party that has her scrambling to save her job.

Stand Its Ground

President Xi Jinping had a clear message to those who want to thwart China’s rise: You will fail. In a speech running almost two hours on Sunday, Xi let the world know that China wouldn’t change course even in the faced “dangerous storms” in a more hostile world. The Chinese leader hailed the nation’s “fighting spirit” and said the country was “well-positioned for pursuing development and ensuring security.” Xi’s remarks indicate that China is ready to stare down a growing challenge from the US under President Joe Biden, who has moved to hinder Beijing’s ability to access advanced technology and sought to deter any military action against Taiwan. 

Energy Crisis

The European Union’s executive arm plans to propose a mechanism to curb price volatility on the bloc’s biggest gas marketplace and prevent extreme price spikes in derivatives trading to rein in the region’s energy crisis. The temporary mechanism designed by the European Commission would impose a dynamic price limit for transactions on the Dutch Title Transfer Facility, whose main index is the benchmark for all gas traded on the continent. Commission President Ursula von der Leyen said earlier this month that the TTF no longer reflects the bloc’s energy reality after Russia cut supplies to Europe. The commission has been under mounting pressure from national governments to impose a cap on gas prices.

Beyond the Turmoil

Investors are looking beyond a looming global recession and they see one country – and its financial markets – emerging strongest on the other side. US stocks and bonds will lead the way out of the current wave of market turmoil, according to respondents in the latest MLIV Pulse survey. Meanwhile, they reckon it’s close to an even bet as to whether the UK economy or the euro area will fall into a slump first. About 47% of the 452 respondents expect the UK to win that unwelcome prize, perhaps reflecting greater financial stability risks in that country, compared with 45% who said Europe. Only 7% saw the US becoming the first economy to crack.

Not Over Yet

French Prime Minister Elisabeth Borne called on striking refinery workers to return to work as fuel shortages worsened and left-wing politicians led a protest march against increased cost-of-living expenses. “It’s not normal that a minority of workers continue to block the country,” Borne said in an interview on TF1 television. She cited salary agreements signed last week by other unions that represent most workers at the companies, though the CGT union remains on strike. Strikers from the hard-left CGT union at some of TotalEnergies’ refineries plan to extend their walkout at least through Tuesday, when CGT and other unions have called for a nationwide strike that may affect the Paris transit system, the national railways and Electricite de France. 

Coming Up…

European stocks are poised to drop following bleak sessions in Asia and Wall Street, and as traders assess messaging from China’s Communist Party congress. EU foreign ministers meet in Luxembourg amid Russia’s intensifying mobilization efforts for its war on Ukraine. The Paris Motor Show returns after two years of cancellations due to the pandemic. Expected data include UK house prices and Danish producer prices. Sandvik and Bank of America report earnings, while Rio Tinto issues its third quarter operations review.

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(Source: Bloomberg, Oct. 17-2022)