UK Race

Rishi Sunak took a huge step toward becoming the UK’s next prime minister after Chancellor of the Exchequer Jeremy Hunt endorsed him and former premier Boris Johnson pulled out of the contest. In a statement on Twitter late Sunday — shortly after Johnson said he wouldn’t stand for fear of dividing the Conservative Party — Sunak vowed to lead with “integrity, professionalism and accountability” if he won the race for No. 10 Downing Street. Sunak faces House of Commons Leader Penny Mordaunt in what is now a two-person race. The pound got a lift on expectations that a potential premiership under Sunak, himself a former chancellor, could help fix the nation’s battered finances.

China Syndrome

China’s markets delivered what appeared to be a stark rebuke of President Xi Jinping’s move to stack his leadership ranks with loyalists. The yuan was under pressure and a gauge of Chinese stocks in Hong Kong slid to the lowest level since the depths of the 2008 global financial crisis. An index of Chinese technology companies was in sight of a record low. Xi’s power is at a new zenith after the Communist Party congress. That signals little respite from the economically-costly Covid Zero policy of lockdowns to fight the virus. Nor do investors appear to hold out much hope for a rejuvenation of private enterprise under China’s most powerful leader since Mao Zedong.

ECB Primed

The European Central Bank is priming another hefty hike in interest rates this week as the attention increasingly switches to how high it will eventually push. A second straight three-quarter-point increase — an increment that appeared almost inconceivable earlier this year but is becoming the norm after three such moves by the Federal Reserve — is all but a done deal on Thursday, bringing the deposit rate to 1.5%. Few reckon it will settle there. But investors and economists wonder how far it can be lifted as an energy-driven recession threatens to engulf the euro zone and households grapple with surging heating and mortgage bills.

Dirty Tactics

Russian Defense Minister Sergei Shoigu called his counterparts in the UK, France and Turkey warning of a drift toward “uncontrolled escalation” in Ukraine and the potential for Kyiv to detonate a radioactive “dirty bomb.” The US called the allegation “transparently false” as Shoigu and US Secretary of Defense Lloyd Austin spoke for the second time in three days. Austin’s office “rejected any pretext for Russian escalation.” Moscow has repeatedly claimed, without evidence, that Ukraine intends to use chemical or radioactive weapons in a bid to discredit Moscow. Similar reports circulated Sunday on Russian state media. Ukraine has consistently denied any such plans and did so again on Sunday.

Coming Up…

European stocks look set for gains even after Asian shares struggled amid the slump in China. UK leadership contenders face a 2 p.m. deadline to certify the support of at least 100 MPs to make the ballot. German Chancellor Olaf Scholz opens a German-Ukrainian business forum, with Ukrainian President Volodymyr Zelenskiy joining via video. Data include French, German and UK PMIs. Philips announced a restructuring and a cut in its workforce as it delivered earnings. Galp, Cadence Design and Discover Financial also report results.

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(Source: Bloomberg, Oct., 24-2022)