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UN chief prepares state of the world speech: ‘literally on fire’

UNITED NATIONS (AP) — Warning that the world is in “great peril,” the head of the United Nations says leaders meeting in person for the first time in three years must tackle conflicts and climate catastrophes, increasing poverty and inequality — and address divisions among major powers that have gotten worse since Russia invaded Ukraine.

In speeches and remarks leading up to the start of the leaders’ meeting Tuesday, Secretary-General Antonio Guterres cited the “immense” task not only of saving the planet, “which is literally on fire,” but of dealing with the persisting COVID-19 pandemic. He also pointed to “a lack of access to finance for developing countries to recover — a crisis not seen in a generation” that has seen ground lost for education, health and women’s rights.

Guterres will deliver his “state of the world” speech at Tuesday’s opening of the annual high-level global gathering. U.N. spokesman Stephane Dujarric said it would be “a sober, substantive and solutions-focused report card” for a world “where geopolitical divides are putting all of us at risk.”

“There will be no sugar-coating in his remarks, but he will outline reasons for hope,” Dujarric told reporters Monday.

The 77th General Assembly meeting of world leaders convenes under the shadow of Europe’s first major war since World War II — the conflict between Russia and Ukraine, which has unleashed a global food crisis and opened fissures among major powers in a way not seen since the Cold War.

Yet nearly 150 heads of state and government are on the latest speakers’ list. That’s a sign that despite the fragmented state of the planet, the United Nations remains the key gathering place for presidents, prime ministers, monarchs and ministers to not only deliver their views but to meet privately to discuss the challenges on the global agenda — and hopefully make some progress.

At the top of that agenda for many: Russia’s Feb. 24 invasion of Ukraine, which not only threatens the sovereignty of its smaller neighbor but has raised fears of a nuclear catastrophe at Europe’s largest nuclear plant in the country’s now Russia-occupied southeast.

Leaders in many countries are trying to prevent a wider war and restore peace in Europe. Diplomats, though, aren’t expecting any breakthroughs this week.

The loss of important grain and fertilizer exports from Ukraine and Russia has triggered a food crisis, especially in developing countries, and inflation and a rising cost of living in many others. Those issues are high on the agenda.

At a meeting Monday to promote U.N. goals for 2030 — including ending extreme poverty, ensuring quality education for all children and achieving gender equality — Guterres said the world’s many pressing perils make it “tempting to put our long-term development priorities to one side.”

But the U.N. chief said some things can’t wait — among them education, dignified jobs, full equality for women and girls, comprehensive health care and action to tackle the climate crisis. He called for public and private finance and investment, and above all for peace.

The death of Britain’s Queen Elizabeth II and her funeral in London on Monday, which many world leaders attended, have created last-minute headaches for the high-level meeting. Diplomats and U.N. staff have scrambled to deal with changes in travel plans, the timing of events and the logistically intricate speaking schedule for world leaders.

The global gathering, known as the General Debate, was entirely virtual in 2020 because of the pandemic, and hybrid in 2021. This year, the 193-member General Assembly returns to only in-person speeches, with a single exception — Ukrainian President Volodymyr Zelenskyy.

Over objections from Russia and a few allies, the assembly voted last Friday to allow the Ukrainian leader to prerecord his speech because of reasons beyond his control — the “ongoing foreign invasion” and military hostilities that require him to carry out his “national defense and security duties.”

By tradition, Brazil has spoken first for over seven decades because, at the early General Assembly sessions, it volunteered to start when no other country did.

The U.S. president, representing the host country for the United Nations, is traditionally the second speaker. But Joe Biden is attending the queen’s funeral, and his speech has been pushed to Wednesday morning. Senegalese President Macky Sall is expected to take Biden’s slot.

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Liz Truss is cutting the red tape for small businesses in the U.K. as the bad news piles up

Small companies in the U.K. just got some good news amid all the recent doom and gloom.

Liz Truss, the embattled new prime minister, said at a Conservative Party conference in Birmingham on Sunday that she would slash the red tape for tens of thousands of small companies, often seen as the engines of economic growth.

She’ll do so by tweaking a rule rather than creating a new one—specifically, by changing how a small company is defined

“By raising the definition of a small business, in terms of regulation, from 250 to 500 employees, we will be releasing 40,000 more businesses from red tape,” Truss said in a statement.

That aspect of her plans should go down well with nearly all small-business owners, whatever their political leanings. 

Truss has been slammed by markets and critics in recent days over a controversial mini-budget announced last month. Amid high inflation, her plan calls for the biggest tax cuts in decades while also boosting government borrowing and spending. 

News of the plan—panned as “trickle-down economics” by the opposition Labour Party and criticized by some members of Truss’s own party—sent the pound plummeting.

On Sunday, Truss told the BBC she wished she had “laid the ground better” for announcing the budget, but insisted she’s sticking with her blueprint despite the market chaos.

Particularly galling for many was the decision to cut taxes for the highest earners in the U.K. Truss said Sunday that decision was taken by Chancellor of the Exchequer Kwasi Kwarteng. 

Meanwhile three-quarters of U.K. voters—including 71% of those who backed the Conservatives in the last election—believe Truss and Kwarteng have “lost control” of the economy, according to a poll for the Observer by Opinium released this weekend.

Truss ‘right to target growth’

Yet Tony Blair, former prime minister and Labour Party leader, said Truss was “right to target growth.”

While acknowledging his own focus would be different than Truss’s, he told host Ian Bremmer on the GZeroWorld podcast this weekend:

“You’ve got to get the growth rates up. One of the first things you realize in government is if growth is strong, revenues are strong. If revenues are strong you can spend money on public services. If the growth rates are low or you’re in recession, then suddenly everything looks worse and you’re having to cut back on services.”

Mark Littlewood, director general of London’s Institute for Economic Affairs, told Sky News last month the move away from high taxes and regulations would reignite economic growth, adding, “A rising tide lifts all ships.” 

Business secretary Jacob Rees-Mogg said of the plan:

“Regulation backs incumbents, it backs big business against challengers. New employment comes, generally, speaking from smaller businesses. You mustn’t regulate them as if they’re big businesses—you stop the level of growth, you don’t get the growth you need. This isn’t a mad rush to remove all safety regulations. It’s making sure the regulations are ones you actually need and pertain to real issues businesses face.”

Julia-Ambra Verlaine, who worked on the Barclays foreign exchange desk before covering markets for the Wall Street Journal, suggested the U.K. and pound could make a comeback. Asked on The Journal podcast Thursday which of various currencies she would take now, she replied:

“I would like to take the pound. I think in the long term—I would take a gamble that they can get back on their feet, and I’d want to buy their currency at the low.” 

With markets showing little confidence in Truss’s plan so far, just how much lower the pound falls remains to be seen. 

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Federal Reserve gets serious about ending the party in Q3, asset valuations fall

JimVallee

During the third quarter of 2022, the Federal Reserve jacked up its key policy rate by 150 points across two meetings, accounting for half of its rate hikes since it started tightening policy in March. That, and Fed officials’ insistence that they’ll keep rates higher for longer to beat down inflation, put a damper on asset prices.

Also not to be ignored, the Fed’s actions to shrink its balance ramped up during the quarter, reaching its full reduction rate in September. At its full pace, the central bank is letting $60B of Treasury securities and $35B of agency debt and agency mortgage-backed securities roll off its balance sheet, an action that reduces liquidity to the financial markets.

In response, investors realized during the quarter that the central bank is serious about removing the punch bowl to ratchet down the economy in an effort to reign in prices.

“Markets welcome the arrival of monetary injections from central banks very warmly; the departure of those injections and the reintroduction of liquidity withdrawals, however, are not warmly welcomed and are accompanied by volatility as market participants sweat while discovering true prices in less distorted markets,” said Interactive Brokers economist José Torres, in a note.

During that three-month period, the 10-year Treasury yield has increased by 93 basis points to 3.829% on the last session of the quarter. Last Wednesday it touched as high as 4.0%, its highest level since the global financial crisis of 2008. Remember, as bond yields rise, bond prices fall.

The bear rallies: Hopes earlier in the quarter that the bear market may have run its course were quashed, with the S&P 500 falling 6.3%, the Nasdaq composite slipping falling 5.0%, and the Dow Jones Industrial Average off 7.6%.

Bitcoin (BTC-USD), which has been generally tracking risk assets, only edged down ~0.2% for the quarter, and is still below the $20K mark at $19.4K, and less than a third of its $68.9K all-time high in November 2021. Ethereum (ETH-USD), which achieved its Merge event in mid-September, jumped 25% during Q3.

Commodities: The phenomenon of investors turning to gold during uncertain times didn’t hold in Q3. The continuous gold contract fell 7.7% during the quarter.

Copper contracts, which generally tracks investors’ expectations for the economy, also fell, dropping 7.9% during the quarter.

Crude oil, more tied to geopolitical events than the Fed’s policy, fell 25%, ending the quarter at ~$79.74 per barrel.

Real estate cooldown: After experiencing super-charged growth during the height of the pandemic, the real estate market cooled some in Q3 as tighter financial conditions pushed mortgage rates higher and forced some homebuyers to the sidelines. The 30-year fixed-rate mortgage averaged 6.70% for the week ended Sept. 29, up a full percentage point from 5.70% for the week ended June 30.

In August, the most recent data available, the median sale price of a new home fell to $436.8K from $439.4K in July. The median existing home sales price fell to $389.5K vs. $403.8K in July. The Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE) sank 12% during the quarter.

But consumers are still spending as inflation rises, even on discretionary items. The Consumer Discretionary Select Sector SPDR ETF (NYSEARCA:XLY) managed a 3.6% increase during Q3.

Technology stocks stayed weak during the quarter, as the Technology Select Sector SPDR ETF (NYSEARCA:XLK) slipped 6.6% during the quarter.

The mighty dollar: With the Fed’s aggressive rate hikes, the U.S. dollar surged as higher interest rates made investing in the U.S. more attractive. The U.S. Dollar Index climbed 6.7% to 112.17 during the quarter. While the strong dollar makes it less expensive for Americans to travel abroad, it makes U.S. export more expensive and increases the debt burden for emerging economies with U.S. dollar-denominated debt.

Looking ahead: Going into Q4, Interactive Brokers’ Torres expects inflation to stay hot, the U.S. labor market remains strong, and the Fed to hang tough. “This will cause economic conditions to continue slowing, bond yields to rise further, albeit they’re probably close to the top, and equities to reach new lows, although they’re probably close to the bottom,” he said.

Traders tilt toward the Fed raising its key rate by 125 basis points over the next two meetings, though many expect a 100 bp increase. CME FedWatch tool puts a 44.1% probability on the rate rising to 4.00%-4.25% and a 51.9% probability on a 4.25%-4.50%.

SA contributor John M. Mason says the Federal Reserve is doing what it promised to do, but be on the lookout for how long it stays on track.

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Toyota’s CEO cautions against electric vehicles hype, views them as just one option in his ‘department store’ of powertrains

Toyota Motor Corp. plans to keep gas-powered cars as a key part of its lineup, rejecting efforts by rivals to go fully electric amid concerns over how quickly consumers will embrace new technologies.

While the world’s largest automaker will introduce more electric vehicles in the coming years, it will also offer a range of other options, including gasoline-electric hybrids, hydrogen- and traditional fossil fuel-powered models, according to Chief Executive Officer Akio Toyoda, who met with reporters Thursday.

Battery-electric vehicles “are just going to take longer than the media would like us to believe,” Toyoda, grandson of the automaker’s founder, told dealers gathered in Las Vegas. He pledged to offer the “widest possible” array of powertrains to propel cars cleanly.

“That’s our strategy and we’re sticking to it,” he said.

Toyota’s stance reflects the numerous and sometimes conflicting considerations for automakers, which are seeking to boost sales, serve diverse customer bases and meet increasingly strict environmental standards in many countries. The decision contrasts with that of competitors such as General Motors Co., which has pledged to go all electric by 2035.

Environmentalists and shareholders have criticized Toyota for dragging its feet in embracing EVs, with Greenpeace putting the brand at the bottom of its ranking of global automakers’ decarbonization efforts. Critics have accused Toyota of clinging to its 25-year history with the gasoline-electric Prius hybrid, which once earned Toyota plaudits.

“The fact is: a hybrid today is not green technology,” Katherine Garcia, director of the Sierra Club’s Clean Transportation For All campaign, wrote in a blog post last month. “The Prius hybrid runs on a pollution-emitting combustion engine found in any gas-powered car.”

Toyota’s electric vehicle pledge

The company last year pledged to spend 4 trillion yen, or $28 billion, to roll out 30 EVs by 2030. Still, that’s less than the $50 billion that Ford Motor Co. is spending to build EVs through 2026.

Despite the apparent disparity, Toyoda said his company already has been investing in battery-powered hybrids for more than two decades. He contends that makes Toyota the “top runner” in reducing carbon emissions from vehicles worldwide.

“Our investments may appear smaller than others’, but when you look at what Toyota has been doing over the last 20 years, the total amount might not necessarily be small,” Toyoda said.

The CEO said a lack of sufficient infrastructure will hold back EV adoption rates, which is a factor in its decision not to go all in on electricity.

“Toyota is a department store of all sorts of powertrains,” he said. “It’s not right for the department store to say, ‘This is the product you should buy.’”

Toyoda expressed skepticism that automakers will be able to achieve the California mandate that will effectively ban gasoline-fueled vehicles by 2035 and require a substantial portion of sales be EVs by 2030. New York said Thursday it would institute similar regulations.

“We have to look at the current price range and infrastructure availability and at what pace they’re going to be upgrading,” he said. “Realistically speaking, it seems rather difficult to achieve.”

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