Ukraine

• There are reports that Russian troops are joining tens of thousands of civilians fleeing Kherson, and Ukrainian forces are moving in to replace them. We're not hearing as much as we did before about Russian plans to blow up the nearby Kakhovka dam on its way out and flood the city of Kherson - perhaps that concern has faded.

Russia

• Pres. Putin gave a speech at a foreign policy conference in which he criticized "Western elites" and differentiated between them and the West overall. Analysts say this new rhetoric is "a trick" designed to sow division and blame the West for his own escalation in Ukraine.

China

• Bloomberg had a great article on last week's Chinese stock market crash in response to Xi Jinping's securing a third term as president. Foreign investors were especially prone to flight on the realization that Xi has no plans to liberalize markets and only aims to consolidate power - and Chinese companies intend to defer to him and his government. Article pasted below.

North Korea

• North Korea fired two unremarkable ballistic missiles into the sea - its first launches in two weeks.
• There are also indications North Korea might try to test a nuclear weapon ahead of U.S. midterm elections. This would be its first such test in five years, and would certainly be widely condemned.

Iraq

• Iraq's Parliament approved a new government after lots of backroom dealing. The new ministers are from the same old gridlocked political system, so nobody expects great change.

EVs and Energy

• Europe is now flush with natural gas, thanks to committed efforts to fill reservoirs before winter. Storage tanks are full and natural gas prices are down 70% from record highs earlier this year. Dutch spot prices for immediate delivery even flipped negative yesterday, indicating no buyers would or could accept new deliveries right away.
• The EU said it reached a deal to ban the sale of new combustion engine vehicles after 2035, following lengthy negotiations. Member states will now have to write their own laws implementing the bloc's decision. Cars currently account for about 12% of EU CO2 emissions.

Other News

• New data showed the U.S. economy grew slightly more than expected in the third quarter. However, most of the growth came from exports and consumer spending and investment were down, so we could still see a recession.
• Al Jazeera blamed the Ugandan government for a slow response to the Ebola outbreak that surfaced last month. Six cases were confirmed in the capital of Kampala - after the government had insisted there were none there.

Xi’s $6 Trillion Rout Shows China Markets Serve the Party First (Bloomberg)

• Attracting capital seen less important than Xi’s ideology
• Regulators say China remains committed to capital markets

China’s marriage of communism and capitalism has for four decades powered the country’s economic rise and lined the pockets of money managers from New York to London and Shanghai. The union was so paradoxical that it was only a matter of time before the two ideologies clashed.

And clash they did, in a spectacular, $6 trillion stock-market blowup that came to a head this week after President Xi Jinping secured a third term surrounded exclusively by close allies. Xi’s consolidation of power scared off international funds who had hoped the Communist Party’s new leadership would include market-friendly officials known to be more sympathetic to ideas such as transparency and liberalization.

Few see China’s free market experiment ending any time soon. Under Xi, authorities have pushed ahead with reforms to give markets greater sway, granting better access to foreign investors and encouraging inflows.

But those who expected the country to gradually accept more capitalist principles have learned that Xi isn’t interested in obeying global market forces for the sake of growth. Rather than designing policy around the whims of investors, Xi’s vision has markets serving, funding and sustaining the goals of the Communist Party. The message to investors: bringing in money takes lower priority over the party’s control.

“Xi is creating a different type of capital allocation system which could still be profitable for outsiders,” said Mark Tinker, chief investment officer of Toscafund HK. “We tend to assume China is going to be like another emerging market. But China tells investors what it wants to do. We’ve got to get used to the idea that the rules aren’t going to be set by us.”

Confidence is running low particularly among international investors. They pulled a record $2.5 billion from mainland stock markets on Oct. 24 alone, and sent the Hang Seng China Enterprises Index down 7.3% to its lowest since 2008. Panic was particularly intense in the U.S., where the Nasdaq Golden Dragon China Index fell as much as 21% intraday. The total sell-off in Chinese equities onshore and in Hong Kong has come to around $6 trillion since a peak in February last year.

The offshore yuan sank to its weakest since the currency starting trading outside China’s tightly-controlled capital borders in 2010.

Fears were already growing among global funds before the party congress, particularly among those hit by China’s crackdowns on some of the country’s most profitable companies such as Alibaba Group Holding Ltd. and online-tutoring firms over the past two years. A bid to curb “disorderly capital” and ensure firms didn’t become more powerful than the Communist Party resulted in punishing losses for shareholders -- and shocked even the most seasoned China watchers.

“Are they still in favor of the free enterprise and market system?” Ray Dalio, founder of hedge fund Bridgewater Associates and a long-time China bull told Bloomberg on Oct 12. “There’s quite a lot of confusion.”

What’s clear under the new political line up is the waning influence of reformers. Figures that have overseen some of the most turbulent periods in China’s recent financial history like economy czar Liu He and Premier Li Keqiang are exiting Xi’s inner circle. The broader 376-member Central Committee list also left off financial regulator Guo Shuqing and central banker Yi Gang, suggesting both are soon heading off into retirement.

By filling top spots with loyalists, Xi is also reducing the likelihood of dissent. One Shanghai-based money manager, declining to be identified speaking about the government, said this could help ensure better coordination across departments and cohesion at the top, and market confidence could improve once foreign selling calms down.

Yet most say the greater executive power, and absence of appointees with top-level experience, raises the risk of a policy misstep. For some, the unscripted exit of former Chinese leader Hu Jintao half-way through the congress underscores the exit of an old guard of technocrats that oversaw decades of rapid growth under collective leadership.

“Whether it was an intentional move or not, it was highly symbolic of the ending of the era of consensus and the continuance of an era where Xi is dominant,” Joe Mazur, senior analyst at at Beijing-based consulting firm Trivium China told Bloomberg TV.

As China’s economy slows, the government is expected to be more deliberate about wealth allocation.

Xi’s emphasis on “common prosperity” reinforces a shift away from the growth-at-all-costs model that has fueled China’s growth, emphasizing the quality -- rather than pace -- of development.

Xi has also placed security and technology at the heart of his vision over the next five years, pledging to “win the battle in key core technologies” in his opening speech at the twice-a-decade party congress. But these comments, rather than endorsing business entrepreneurship, may show China is betting that it can reduce its reliance on the US and its allies through innovation.

An inward shift is also evident in financial markets, with Beijing fortifying onshore funding channels -- where the government exerts more control -- at the expense of those offshore. Chinese companies are increasingly seeking capital at a home, with about 90% of this year’s IPO proceeds sold in Shanghai and Shenzhen over Hong Kong or New York, the biggest proportion since 1999.

“In the real economy, the government has proactively sought self-reliance, retreating from global markets,” said Chang Shu, Chief Asia Economist at Bloomberg Economics. “In its financial markets, China is still interested in the internationalization and the offshore space, but tensions with the US and the overriding priority of national security are leading to a retreat to the domestic market.”

China’s regulators have this week shown they’re still committed to capital markets. The China Securities Regulatory Commission vowed to accelerate the building of an infrastructure that is “regulated, transparent, open, robust and resilient.” The long-term investment value of Chinese capital markets won’t change, the banking watchdog said in a separate statement.

Reforms introduced under Yi Huiman, head of the securities regulator since early 2019, include a flexible approach to pricing IPOs in Shanghai and Shenzhen, wider daily price limits for some stocks, new index derivatives and allowing some banks to trade bond futures. China has also widened the investment scope allowed for foreign investors in its securities and futures markets.

Yi was promoted to the Central Committee at this month’s party congress, suggesting an alignment between his agenda and Xi’s. At the party congress, the president himself said China will “firmly fully deepen reform and opening up,” a sign that foreign investment is still welcome.

“International investors are important for Beijing because they give legitimacy to Chinese capital markets both domestically and abroad,” said Andrew Sinclair, who researches the development of China’s financial markets at the California Institute of Technology. “Beijing wants international investors in China, but this luxury will give way to domestic needs.”

Capital markets will continue to fund China’s growth. But as Xi enters his second decade in power, staying within the government’s parameters will likely be the safest way to make money in China.

“Investors recognize that Xi’s approach differs from previous leaders and are uncertain of what the future direction is,” said Simon Powell, a Hong Kong-based equity strategist at Jefferies Group. “We should expect that this is a place with one man rule.”