Squawk Box Europe Express

Evergrande shares are suspended in Hong Kong markets following Chinese media reports that Hopson Development is set to swoop in for a $5.1bn stake of its property unit. In other M&A news, U.S. private equity company CD&R has snapped up UK supermarket chain Morrisons for close to $10bn and is reportedly looking to install former Tesco boss Sir Terry Leahy as chairman. CNBC learns that U.S. trade representative Katherine Tai will announce that Beijing is not complying with the Trump-era Phase 1 deal. And more from the UK’s driver shortage as the military is set to help ease the fuel delivery crisis but Prime Minister Boris Johnson says he will not soften immigration policy to resolve the problem.

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Wall Street ends its worst month since the start of the pandemic. September saw Covid-related losses, supply chain issues and inflation woes all weighing heavily on U.S. indices. In Washington a shutdown was averted with President Biden signing off on a late-night bill to fund Congress. However, Democrats have bowed to partisan pressure and delayed the vote on the trillion-dollar infrastructure programme. And, BMW raises its full-year guidance in spite of the ongoing chip crisis. The German motor giant’s bottom line has been boosted by higher car prices. Former SPD leader Sigmar Gabriel tells CNBC he welcomes a new pro-European coalition in Germany. And in China, authorities have ordered all state-backed firms to keep energy supplies available “at all costs” as gas prices across the EU and UK soar to record highs. 

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Wall Street recovers but the S&P 500 and the Nasdaq are set to report their worst month for a year. We hear from the Delivering Alpha investor summit where TPG’s Jim Coulter predicts a volatile October. All eyes are on the U.S. Senate where Republicans are expected to continue their opposition to President Biden’s spending plans as well as a bill to suspend the debt ceiling after the measure was voted through the U.S. House of Representatives. The stand-off could set the scene for a potential government shutdown following Friday’s deadline. Chinese factory activity has shrunk for the first time since February 2020, with manufacturers feeling the pinch from high commodity prices. Chinese property developer Evergrande misses another bond coupon payment deadline, causing shares to drive lower once again. And gas prices contract by up to 7 per cent – the sharpest decline since January – but 3 more UK energy providers succumb to higher wholesale prices.  

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The Nasdaq suffers its worst session since March with tech titans such as Alphabet, Facebook and Microsoft all tumbling. There is talk of a looming broader correction in the sector. Asian markets see more selling as U.S. yields remain at 3-month highs with pandemic support set to be wound down. The Federal Reserve Chairman Jerome Powell warns Congress that inflationary pressures could be around for longer than first thought due to worsening supply chain pressures. U.S. Treasury Secretary Janet Yellen warns against a debt ceiling crisis after the Senate blocks a bill to extend the limit, saying the U.S. runs the risk of a “self-inflicted wound” on its economy. And troubled property developer Evergrande offloads a $1.5bn minority stake in a Chinese bank to a state-owned firm.

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The UK fuel shortage crisis continues with supplies to emergency and essential services believed to be under threat. Officials, however, claim that panic-buying is now receding. Meanwhile, Chinese factory profits decline for the sixth consecutive month as rising commodity prices and supply chain issues bite. Also in China, Evergrande shares rise after the PBOC promised to protect housing market consumers. The property giant faces another interest payment tomorrow. In the U.S., Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren resign as fallout from the central bank trading scandal increases. And coalition talks are under way in Germany. The FDP and the Greens are set to hold discussions, while the CDU’s Armin Laschet still hopes to become Chancellor despite coming second to the SPD’s Olaf Scholz.

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Germany’s preliminary official election results are in but there is still no clear winner in the federal elections of Europe’s biggest economy. The CDU/CSU have suffered their worst showing since 1949, but the party candidate Armin Laschet believes he still has a chance of victory. The FDP and Greens will be kingmakers in the result, potentially paving the way for the country’s first 3-party coalition. Evergrande’s EV arm falters in Hong Kong trading as it issues a call for cash and postpones plans to go public. Another bond payment for the Chinese property giant looms on Wednesday. And in the U.K., scenes of long queues and panic-buying at petrol stations dominate the scene, as an HGV driver shortage prompts plans to involve the military to help with deliveries. BP has said that up to 30 per cent of its stations are now empty.

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We are live in Berlin and London for a special edition of Squawk Box ahead of Sunday’s German federal elections. Polls have narrowed with the SPD’s lead over the CDU now just down to a couple of points. During the last TV debate before the vote, candidates sparred over taxation, debt and foreign policy in the face of an ascendant China. We also hear exclusively from ECB President Christine Lagarde who believes that Angela Merkel’s 16-year tenure has left the country in a much stronger position on the world stage. Wall Street is in the green with the Dow and S&P 500 posting their best session since July. However, the Evergrande saga rolls on, leaving global investors in limbo as the troubled property giant enters a 30-day grace period to pay an offshore bond coupon. 

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November seems likely for a potential Fed tapering announcement. Chairman Jerome Powell looks to possibly end support by the summer of 2022, with a rate hike later that year. The Dow and S&P react, closing in the green and ending a four-day losing streak, with bank stocks cheering the news. In China, Evergrande shares jump after the chairman pledges to prioritise shareholders, but doubts remain about an $83.5m interest rate payment on an offshore bond due today. And in Germany political campaigns enter the final stretch ahead of this Sunday’s election.  

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Chinese property development giant Evergrande says it is set to make an interest payment on its bonds as scheduled tomorrow. However, former PBOC advisor Li Daokui says that the company’s debt problems are far greater and the firm could well be dissolved. Mainland Chinese markets attempt to claw back losses on the news after an extended weekend. In the U.S., the House of Representatives has voted to prevent a government shutdown and suspend the debt ceiling. The GOP says it will block the bill in the Senate. JP Morgan CEO Jamie Dimon tells CNBC that market pressures could prompt the Federal Reserve to act more urgently and vigorously in tapering. 

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U.S. indices suffer a torrid session, with the S&P 500 posting its worst day since May while the Dow falls by more than 600 points. In Japan, the Nikkei is also down. Standard & Poor’s warns Chinese property developer Evergrande will potentially default without government support. Beijing is seen as unlikely to step in with aid, unless the risk of contagion rises. And European countries are holding emergency energy talks to see off creeping gas prices, but UK Business Secretary Kwasi Kwarteng says supply fears are overblown. 

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