So, mid-evening Sunday there was a ping on the phone and Boris was gone. In a rather downbeat and un-Boris kind of statement, he explained that he clearly could have won the leadership race but that he has chosen not to. Er? He evidently tried to encourage Rishi Sunak and Penny Mordaunt to step aside and to let him back in. Rishi is on a roll and seeing as that Boris is too vain and too egotistical to consider being defeated, he walked away. If Mordaunt can gather her 100 backers by 1:00 pm BST today, there will be a run-off amongst the party membership between Mordaunt and Sunak. If not, then Sunak will be prime minister before many of you will have read this.

I was amused to see that the Daily Mirror, not a paper known to have much truck with the Tories, yesterday carried a piece by Kevin Maguire which was headlined “Tinpot tyrannical Tories are UK’s equivalent to Chinese Communist Party” No disrespect, Mr Maguire, but if you can see any similarity between the two, then you probably also still see Joe Stalin to have been much maligned and thoroughly misunderstood yet you would still have been on one of the first trains to Siberia.

The mess in the Conservative ranks has been deeply unedifying and yet it has been an extraordinary display of a working democracy in which Boris’s conceding defeat to my mind is proof positive that the strength of public opinion can still shape events. Maybe Mr Maguire, who was after all already 29 at the time, should reflect on the Tiananmen Square massacre and maybe review his comments.

So, Xi Jinping got what he wanted. He has been “re-elected” to the chairmanship of the CCP and has in the process purged any higher cadres who might be anything other than totally loyal to him. The last two members of the all-powerful Standing Committee who had Hu Jintao links are gone and it has become, for lack of a better description, a committee of yes men. My dear old friend Alex Moffatt of J Palmer & Sons in Melbourne hit the nail on the head when he summarised the past week’s NPC as “backslapping and synchronised applause”. Markets were going to be disappointed if there was to be no sign of the zero-Covid policy being eased – a modest element of hope had been priced into Chinese risk assets – and so it has turned out. Xi has given his people as well as foreign observers a clear view of the iron fist in the iron glove and the question which we have been asking for a number of years now remains “Is China investible?” My opinion has, for some while, been and will remain that it is not.

The very fact that the third quarter GDP release had been postponed until the party congress was over confirms that the national statistical office will play to the regime’s tune and Xi doesn’t give toss what the markets think. If the decadent Western plutocrats want to throw their money away, why not? As Napoleon is reputed to have said, “Never stop an enemy when he is about to make a mistake”. Market response to the unwavering approach by Xi and his little acolytes has not been favourable from the perspective of those who have not fully taken on board what is going on in the Middle Kingdom and despite the delayed GDP figure coming in at a significantly stronger 3.9% YoY as opposed to the economists’ consensus of 3.3%, the Hang Seng has at the time of writing tanked by nearly 5% and the CSI 300 has shed 1.75%.

Through the last week Xi and all the Xi clones have steadfastly refused to engage with any of the less satisfying issues which face the country, not least of all the critically faltering real estate sector. If the numbers released are to be believed – not that I’m too sure that they are – then the economy is ticking along remarkably well despite the frequent lockdowns. Retail Sales are reported to be 2.5% higher, Industrial Output is up by 6.3% and Fixed Investment by 5.9%. Exports were 5.7% stronger but imports rose by only 0.3%. Yours to believe or not. The real estate figures were truly ugly with Sales YTD down by 28.6%, Property Investment down by 8.0% with New Home Prices falling by 2.1% YoY.

Investors who regard China, which sports the world’s second largest economy, as a necessary component of a global investment portfolio are welcome to do so. Xi’s positioning, however, is such that if markets are to be collateral damage in his now clearly no longer developing capitalist economy, so be it. Investments, the value of which are at the beck and call of the ideologists in charge are not markets. And, as I have long argued, anyone who adheres to the fashion for ESG investing, as questionable as the definition has become, should be running away from China screaming blue murder. In many cases, ESG adherence has become a little like taking a rough estimate and then reporting it to four decimals. Xi will let the Goldmans and the JP Morgans and so on play around in Shanghai and Beijing for as long as it suits him and as long as he can rely on them not to ask any of the questions he does not want to be asked.

Are you listening Mr Maguire?

When the surface of China’s GDP release has been scratched, the picture is not of an economy wound up like a spring ready to launch itself into a new phase of growth but of an edifice hanging onto fading dreams. Xi stood there representing the epitome of stability and consistency and markets liked that no more than they do the volatility of Westminster. When the underlying economics are unsatisfactory, politics can offer little more than temporary distraction.

That leaves us with the one great imponderable which is not what Xi intends for Taiwan- that he has made perfectly clear, and he now has no more dissenting voices within his inner circle – but when? Part of the answer will be given two weeks tomorrow when America goes to the polls. According to Politico, the final make-up of the Senate remains a toss-up but for all intents and purposes the GOP will succeed in flipping the House. Give me a weak, uninspiring and unconvincing Democrat President with an antagonistic, Republican Hill and I’ll give you give you Putin’s and Xi’s wet dream.

That said and for all its failings, the US economy has since time immemorial shown a resilience and an ability to self-repair in a way which none other can. American entrepreneurship, the desire and the ability to set up a business in the garage and to start over, remains strong and party politics stops outside the place of work. France, for example, is facing a wall of labour unrest which is fuelled as much by ideological as it is by financial aspirations. A large proportion of the economy is still in public sector hands and the mass privatisation of utilities in the rest of Europe has only marginally affected France where golden shares assure ultimate central control. The flip side is that a strike in any of these results in a direct challenge to the Elysée Palace.

The contrary is true in the United Kingdom where an ongoing dispute being carried out by postal workers is rapidly turning into a defeat. The breakdown of central monopolies has devoided unions and workers of much of their traditional disruptive power and none more so than in parcel delivery. Universal postal service is of course at the heart of a society but business’s dependency on it has long faded. Remarkably, it is government itself which will be least able to branch away from “snail mail” and which relies on postal services to be able to access every household, whether digitally connected or not. At the same time, however, much of this government business, as important as its communication is, is not utterly time-critical and although reduced services are irksome, they are rarely anything close to being existence threatening. Working from home, developed to near perfection during the pandemic, has also to an appreciable extent blunted the power of the rail unions. Conversely, the long delayed and hugely controversial highs speed rail project HS2 is to some extent also beginning to look as outdated as steam itself.

On the subject of railways, I was last week treated to a private tour of London’s St Pancras Station and the surrounding area, which was once Europe’s largest single development site, but which is pretty near completion. My guide was the former CFO and then CEO of London and Continental Railways which owned the site while entirely coincidentally one of the two principles of Argent Properties, the lead developer, lives but a few hundred yards from myself here in the rural Cotswolds. I cannot believe how much I learnt during the hour or so during which were being shown around – the gentleman guiding us happens to be my recently acquired brother in law – but it did remind that there is still plenty of entrepreneurial power in this country and that we are nowhere near as finished as our critics, of we ourselves are the fiercest, would have us believe.

One of the earliest sponsors of the redevelopment of the Kings Cross area – Kings Cross Station and St Pancras are immediate neighbours – and whose backing helped to get the project off the ground was Google and although construction of everything around the new Google headquarters is completed and occupied, ten years after ground was broken the Google site remains unfinished. Don’t ask me why. I don’t know. But I would love to.

Mayhem in the US Treasury market and for once not to the downside. On Friday, the Fed released a piece which pointed not to an acceleration of monetary policy tightening but possibly to a slowing. Whether or not this is the much vaunted “pivot” can only be declared by those who know what the precise definition of a pivot is but what it has done is to generate optimism that the next rate move will be 75 bps but then that the increment of future rate of increases might decline to 50 bps. Risk asset markets didn’t wait, and the Dow went out 748.97 pts or 2.47% to the good. The “risk on” trade was remarkably and unusually even across the equity indices with the S&P500 booking a gain of 2.37%, the Nasdaq of 2.31% and the Russell 2000 of 2.22%.

Having peaked on Thursday at a yield of 4.61%, the US two year is this morning marked at 4.44%. One swallow a summer doth not make although I do gather that some of the heavy hitters believe that we are either at or close to the inflection point. Dollar/yen is back below ¥150.00 and in the mid – ¥148s. In many areas, supplementary intervention by the Bank of Japan had been expected although the powers that be might just sit back and see whether the mood for an ever-stronger dollar might be in the process of beginning to fade.

It is too early to definitively call the Fed to be closing in on the end of its tightening cycle and also of the dollar having peaked but only a blind man or a fool would not step back and take a few days to observe.

So off we trot into a new week. Within a few hours we should have a bit more transparency on where this country will be headed over the coming months. A general election looks highly unlikely. Nevertheless, the following words should be borne in mind “For too long, …., we postponed facing up to fundamental choices and fundamental changes in our society and in our economy. That is what I mean when I say we have been living on borrowed time. For too long this country …. has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry. Governments of both parties have failed to ignite the fires of industrial growth in the ways that countries with very different political and economic philosophies have done.” which went on “Quite simply and unequivocally, it is caused by paying ourselves more than the value of what we produce. There are no scapegoats.” Thus James Callaghan, erstwhile Chancellor of the Exchequer but by then Prime Minister at the Labour Party annual conference of 1976. I rest my case.

The author is a retired City trader specialising in fixed income who now works as a freelance strategy consultant. 

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