On the Brink

Liz Truss’s premiership looked close to imploding after she fired one minister over a security breach and two others were heard resigning amid the fallout from a chaotic parliamentary vote before agreeing to stay in their posts. In just six weeks in office, Truss has already triggered a run on the pound, been bailed out by the Bank of England, abandoned almost her entire policy program and fired her closest political ally. Many Conservative lawmakers now want Truss to resign immediately. Meanwhile, the BOE’s quantitative easing’s journey from government cash cow to liability will reach a key milestone with a transfer of more than £11 billion ($12.4 billion) by the Treasury.

Fed’s Hikes

Federal Reserve Bank of St. Louis President James Bullard said he expects the central bank to end its ‘’front-loading” of aggressive interest-rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools. “You do have to think about what the reasonable level is,” Bullard said in a Bloomberg TV interview with Kathleen Hays in St. Louis, suggesting that he doesn’t currently see the need to push rates higher than officials have already projected. Bullard has been among the most hawkish Fed officials this year and was the first to publicly suggest hikes of 75 basis points, which have become routine this year as part of the inflation fight.

Energy Crisis

Europe is loading up on cheaper Brazilian ethanol, tripling imports in order to cope with the energy crisis triggered by the war in Ukraine. Prices for natural gas and power are so high in Europe that some ethanol makers have considered shutting down plants. As in other countries, it’s a requirement that ethanol be blended with gasoline in Europe. Luckily, Brazil is stepping in with a more affordable alternative, which could bring down the cost of driving. Demand is so great that companies are boosting production of alternative types of ethanol to keep up.

Security Council Briefing

The US, along with France and the UK has called for a special United Nations Security Council briefing regarding evidence that Russia has procured Iranian drones for its war on Ukraine. The US Mission to the UN said in a statement Wednesday that the so-called expert briefing would look into Russian procurement of Iranian unmanned aerial vehicles “in open violation” of a Security Council resolution. Drones have been deployed in recent Russian attacks on power plants and other installations across Ukraine. About 30% of the country’s power stations have been destroyed since Oct. 10, President Volodymyr Zelenskiy said Wednesday.

Coming Up…

European stocks are on track for declines as bond yields popped amid fears of a global slowdown. EU leaders begin a two-day summit in Brussels. Norges Bank Governor Ida Wolden Bache speaks. On the data front, there’s Germany PPI inflation, Swiss watch exports and Netherlands unemployment ahead. Analysts expect Volvo to report solid quarterly results, with its Trucks business, orders and supply chain in focus. Other earnings on deck include ABB, Investor AB, Danaher and Philip Morris.

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(Source: Bloomberg, Oct. 20-2022)