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Quest Means Business
King Charles III To Appoint Rishi Sunak As Prime Minister On Tuesday; Chinese Markets Plunge As Xi Tightens Grip On Power; Beijing's Power Reshuffle; Bolsonaro, Lula Face Off In Brazil Run-Off Sunday; Nine People Dead In Somalia Terrorist Attack; At Least Two Killed In Shooting At St. Louis High School. Aired 3-4p ET
Aired October 24, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ISA SOARES, CNN INTERNATIONAL HOST: It is 8:00 PM at the end of a truly momentous day in London. Rishi Sunak will be the UK's next Prime Minister.
His first challenge, restoring confidence as Britain faces giant economic headwinds.
Then China's tech stocks plummet after Xi Jinping tightens his grip on the country.
And NATO's chief says Russia is lying when accusing Ukraine of plans to use a dirty bomb.
Live from London It is Monday, October 24th. I am Isa Soares in for Richard Quest and I too mean business.
Good evening, everyone.
After six weeks of political and economic chaos right here in the United Kingdom, the Conservative Party has turned to Rishi Sunak to right the
ship, to steady the ship, I should say.
The former Chancellor will meet King Charles on Tuesday morning to be invited to serve as Prime Minister. At 42, Sunak will become Britain's
youngest Prime Minister in modern times. The first Hindu and the first person of color to lead the nation.
The task ahead though, of him is pretty huge. He will be the third PM in just seven weeks. He must try to unite his very divided party and restore
the country as well as the government's economic credibility.
Here he is speaking a little earlier. Have a listen.
(BEGIN VIDEO CLIP)
RISHI SUNAK, INCOMING BRITISH PRIME MINISTER: The United Kingdom is a great country, but there is no doubt we face a profound economic challenge.
We now need stability and unity and I will make it my utmost priority to bring our party and our country together.
(END VIDEO CLIP)
SOARES: Now, on the financial markets, British stocks did rise. The FTSE 100, we are bringing you those numbers finishing up as you can see that
more than six-tenths of a percent. It was a volatile day though for Sterling, you see there on your screen. The pound is now lower against the
US dollar.
Bianca Nobilo joins me now from outside 10 Downing Street.
So Bianca, what can we expect from the new Prime Minister? He was talking about humility earlier. What do you think we'll see from his Premiership?
BIANCA NOBILO, CNN INTERNATIONAL CORRESPONDENT: We don't have too many clues at the moment, Isa, other than what we know of him to date, but in
terms of the speech he gave today, he did it by the book. He thanked the outgoing Prime Minister. He talked about how it would be the greatest
privilege of his life to serve in this role and made several overtures to unity.
But I was speaking to somebody inside Rishi Sunak's camp just a moment ago on Messenger and they were telling me that they didn't feel it was
appropriate given he is not Prime Minister yet for him to do a particularly long or detailed speech. It wasn't the time. That we can expect on the
steps of Downing Street tomorrow, around noon.
And there's still a lot we don't yet know about Rishi Sunak. His political career in some respects has been entirely formulaic, but in other regards,
Isa, he really has broken the mold.
(BEGIN VIDEOTAPE)
NOBILO (voice over): After making the runoff in the second leadership contest in this many months, it is second time lucky for Britain's new
Prime Minister, Rishi Sunak, but that is where his luck runs out.
Sunak inherits an economic nightmare stoked by soaring inflation, war in Europe, a party at its lowest level of popularity in a generation, eating
itself alive.
Changing Prime Ministers at a pace never seen.
LIZ TRUSS, OUTGOING BRITISH PRIME MINISTER: I am resigning.
NOBILO (voice over): The last, Liz Truss became Britain's shortest serving leader ever at a mere six weeks, but the former Chancellor has not
sugar coated the challenges Britain faces assuring that he has the economic credentials to steer the nation through the crisis.
SUNAK: We have to be honest, but borrowing your way out of inflation isn't a plan. It's a fairy tale.
NOBILO (voice over): The predictions he made about the impact of Truss' tax cutting economic plans were vindicated.
Born to parents of Indian descent, Sunak is Britain's first person of color to become Prime Minister, but his path to power is a tale as old as time.
[15:05:02]
Educated at one of Britain's most exclusive schools, Winchester College on to Oxford University like over half of the country's Prime Minister, then
into the finance industry.
After being praised for slick performances during the pandemic, he was tipped to become the next leader. Then his political fortunes took a
nosedive.
Sunak's resignation as Chancellor in last days of the Boris Johnson government was seen as being instrumental in Johnson's downfall.
Then, Sunak lost the leadership contest to replace Johnson after his popularity had taken a battering, with many Johnson supporters blaming him
for Johnson's end.
The London Police had fined him for attending an illegal gathering in lockdown and his wife, Akshata Murthy, the daughter of the Indian
billionaire founder of Infosys, came under fire for her non-domicile status, sparing her a huge tax bill on her massive foreign income.
Sunak ranks among the UK's richest and has been labeled out of touch with ordinary voters.
SUNAK: I have friends who are in a working class, but -- not working class, but I mix and match and then I got to see kids from another city
state school and tell them you know, to apply to Oxford.
NOBILO (voice over): This 2001 BBC documentary clip when he was still at university later went viral, and it didn't help.
He has since walked back that comment, but this didn't help either.
Now Sunak leads Britain at a time when millions fear they won't be able to afford their food and heating this winter.
KEVIN HOLLINRAKE, BRITISH CONSERVATIVE MEMBER OF PARLIAMENT: I think Rishi does have the characteristics that could restore faith in our party,
yes. I mean, I think he has demonstrated that. You judge people on their actions, not their words.
NOBILO (voice over): The moment calls for a shrewd political operator, a powerful communicator, a unifier.
Sunak will be tested and judged immediately.
(END VIDEOTAPE)
NOBILO (on camera): The incoming Prime Minister, Isa, has a track record in government of exhibiting pragmatism, whether it was involving Brexit, he
voted to leave the European Union, but then did vote along with compromised deals suggested by Theresa May and was actually called a sellout Brexiteer
by others within the party, or with his performance as Chancellor during the pandemic.
He is instinctively a free marketeer, someone who wants small state, less public spending, lower taxes, but obviously adjusting to the circumstances
of the day. He made allowances and that kind of approach will stand him in good stead with the party that is so divided.
SOARES: Bianca Nobilo outside 10 Downing Street, thanks very much.
Well, Rishi Sunak really has quite the in-tray awaiting him once he moves into Downing Street. The economy as Bianca was outlining in that report is
one of the biggest issues Liz Truss' disastrous mini budget -- remember that one -- caused a meltdown in the UK's financial markets.
The rescue effort will require moves to fill in a yawning hole in government finances, which is expected to mean, unfortunately, cuts to
public spending and higher taxes. Then there is the uniting the Tory party after months of bitter infighting.
Meanwhile, inflation is running hot at just over 10 percent -- 10.1 percent, in fact, in September. Government borrowing costs have also
surged. And how can we or any of us forget, energy prices are soaring thanks to Putin's invasion of Ukraine, the PM will want to try to protect
consumers this winter. As you can see, it's a very long to-do list and that's just the top priority.
Simon Fraser is the former Permanent Secretary at the British Foreign Office and was head of the UK Diplomatic Service, a regular face on the
show.
Simon, great to see you again.
SIMON FRASER, FORMER PERMANENT SECRETARY AT THE BRITISH FOREIGN OFFICE: Hello.
SOARES: Well, it's been quite a roller coaster few weeks, isn't it? How do you think this chaotic seven weeks or so has been -- how is the UK being
seen around the world in your view, Simon?
FRASER: Well, you say it has been a roller coaster few weeks, it's actually been a roller coaster few years. But let's pass over that, shall
we?
I mean, let's look at the last few weeks. I think probably, the international community will have looked at this and you'd expect them to
be shocked by it. Maybe they just actually give a bit more of a weary shrug of the shoulders at this stage.
But clearly, what happened under Liz Truss was very destabilizing for the UK economy and for UK politics. And you saw some pretty sort of pointed
criticism from President Biden, from Larry Summers, and elsewhere.
So I expect the world will now be looking at London and saying, well, thank goodness, they've avoided another bitter leadership contest in the
Conservative Party.
And actually Rishi Sunak, combined with Jeremy Hunt, remember who is probably, I would expect staying on as the Chancellor of the Exchequer,
that is a pretty good combination and probably will encourage some sort of sense of optimism and reassurance that finally we're beginning to get our
act together.
SOARES: And you know, I heard one commentator ended last week saying you know, the UK was the laughingstock.
FRASER: Yes.
SOARES: We saw "The Economist" front page comparing UK to Italy. Was it Liz Truss, was it the mini budget or is this years in the making, Simon?
FRASER: Well, I mean certainly the last bit of it was Liz Truss and the media budget and the fact that that was completely unprepared and
obviously, it took the markets by surprise and was unfunded.
[15:10:12]
SOARES: Yes.
FRASER: But of course, I think it goes back further than that. I mean, in my view, the whole Brexit initiative was unprepared, was unthought through
and it has led to very divisive politics in this country, an unstable government for a period of time.
So, I think this was in a way, the climax, or at least I hope it is the climax of that uncertainty. And we really need to turn things around now,
and as you said, you know, reassure the markets and move forward.
SOARES: And as you're talking, I'm looking at the FTSE 100 that has really followed really the politics that we have seen and the economic
uncertainty that we have seen in this country, and there are a lot of challenges.
We outlined some of the challenges, of course for Mr. Sunak. What would you say the number one challenge will be for him?
FRASER: The number one challenge now for him and for Jeremy Hunt is to get their economic package, their fiscal package through the party and
through Parliament.
You may recall, they have got to present that by the 31st of October and that is what the markets will be looking at, because that is going to be
the way that they're going to fix the problems that we have, which have been exacerbated by Liz Truss and Kwasi Kwarteng's mini budget.
So that's the big challenge for them, and if they can't, in particular, demonstrate Conservative Party unity around that, then I think the
headwinds will be very strong very soon.
So, they're not out of the woods by any means.
SOARES: And the markets as we saw when Jeremy Hunt announced those details from the fiscal policy, they seem to have liked what they heard. We
saw FTSE turn, we saw Sterling as well improved somewhat.
Do you think that Rishi Sunak, who is a detail man, of course, has had that job before, do you think he will do much tinkering here?
FRASER: Well, I think he should let Jeremy Hunt do his job, and if they start to get too much sort of intrusion from Number 10 into Number 11
Downing Street, that is always a recipe for disaster.
But I think they'll work together. I suspect they have very similar views on what needs to be done. Jeremy Hunt has halted the slide of the markets,
but the long work of recovering credibility over time is all ahead.
SOARES: Credibility, stability, all I've been hearing today is unity. We've talked about the economics, let's talk about the politics, because as
you all know, there has been quite contentious -- within the Conservative Party and many different factions.
Can he unite the party? Is he the unity leader that you need -- that the Conservative Party needs right now?
FRASER: Well, I mean, I think the Conservative Party is deeply divided ideologically, both on Brexit lines and also on lines about the size of
government, the role of government, the sort of ideology of government.
So there are deep divisions, and I don't think they've gone away, but I do think the Conservative Party has understood that, you know, if it doesn't
get its act together, now, then it's curtains. This is really the last chance.
So I think that Rishi Sunak will be given the benefit of the doubt, and I think they will try and support him and unite around him. And if they do,
he has a reasonable chance of making it through to the schedule of the next General Election, which is in 2024.
But if they don't, then I think it will all unravel before him.
SOARES: Don't know what lies ahead, if they go against him.
FRASER: They are in the Last Chance Saloon.
SOARES: Simon, great to see you. Thanks very much.
FRASER: Thank you.
SOARES: Now, global investors have been rattled, but not because here in the UK, because Chinese President Xi Jinping has got an unprecedented third
term.
After the break, Zain Asher will look at why his lock on power has so many people worried. That is next.
You are watching QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
[15:16:12]
ZAIN ASHER, CNN BUSINESS HOST: A brutal day for Chinese stocks on the first day since Xi Jinping tightened his iron grip on power. The Hang Seng
Index fell to a 13-year low closing more than six percent lower. The Shanghai Composite fell two percent.
Selina Wang looks at what led to the selloff.
(BEGIN VIDEOTAPE)
SELINA WANG, CNN INTERNATIONAL CORRESPONDENT (voice over): The Chinese Communist Party wrapped up its twice in a decade meeting over the weekend.
Xi Jinping cemented his status as China's most powerful leader in decades, reappointed for an unprecedented third term.
The world was expecting him to consolidate his power, but the extent to which he did so it was astonishing. He stacked all of the top leadership
positions with his closest allies and protegees.
The fear now is that he is surrounded by an echo chamber of yes-men increasing the risks for policy mistakes in foreign affairs and economic
policy.
China finally released its third quarter GDP data after delaying it during the Party Congress. The numbers showed that China's economy grew 3.9
percent, better than what economists expected, but despite that, investors are spooked.
Hong Kong stocks had its worst day since the 2008 global financial crisis. What this reflects is a deep pessimism and disappointment over the future
of China's economy, because increasingly, only one man's opinion matters in China.
So, the expectation is Xi is going to double down on what he has already been doing. So, that means more Communist Party control over the economy,
which critics say has suffocated private businesses leading to mass layoffs, especially in the tech industry.
Xi Jinping has made it clear that zero COVID isn't going away, which has wreaked havoc over the economy and people's lives. The property sector is
in crisis, unemployment remains high.
On foreign policy, the expectation is that tensions with the US will increase as well as intimidation of Taiwan. Under Xi, Beijing no longer
believes it needs to play by America-led international rules.
But as the US and other global powers push back against China, well, Xi is trying to make the country more self-reliant and self-sufficient.
So in his third term and beyond, we may see a China that is more powerful and advanced, but also more closed off.
Selina Wang, CNN, Hong Kong.
(END VIDEOTAPE)
ASHER: And Chinese stocks listed in the US are also taking some hits as well. The electric carmaker, Nio, is down about 17 percent on the New York
Stock Exchange, Alibaba is up about 14 percent. It is now trading lower than its IPO price of $68.00 a share and JD.com and Pinduoduo sharply lower
as well.
Our Rahel Solomon joins us live now.
So I think, Rahel, there really is a fear that there could be an even stronger crackdown when it comes to tech companies. Just walk us through
that.
RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Absolutely, Zain, and you can see foreign investors really spooked by that idea and the premise of an
even more powerful Xi Jinping.
So, as you pointed out, the Hang Seng, for example, closing lower by about 6.4 percent, its worst day in 13 years, and that is really hitting tech
stocks quite closely. E-commerce player Pinduoduo closing lower, about 26 percent on the day, the same story for EV names like Nio, Alibaba, the
same.
And Zain, you have to remember, it wasn't long ago, 2021, I believe it was that Alibaba was hit with that record $2.8 billion fine for monopolistic
behavior. DiDi, for example, also knocked off the App Store over concerns over cyber security. DiDi, of course the largest ride hailing service in
China.
So these are some of the concerns that are fresh on the minds of investors after this weekend, after Xi Jinping's third term, the next five years, and
so you can really see the anxiety and the anxiousness of foreign investors who are pulling out, but Zain, just to give you a sense of just the scale
of some of these losses, just between Alibaba and Tencent, which both fell about more than 11 percent, the combined loss was about $54 billion of
market value.
So investors do not like what they see and what this means for the next five years, at least.
[15:20:24]
ASHER: My goodness, an eye watering amount of money. What's interesting also is that China actually delayed the release of third quarter GDP
information. So, it didn't coincide with the meeting, so there wouldn't be any bad news around this meeting. But we are getting that information and
that data now. What are we learning, Rahel?
SOLOMON: Well, that's a great point, Zain, right, because that information was expected to really be released October 18th, and then late
October 17th, it was announced that it would be delayed, but without much of an explanation.
So GDP for the third quarter came in slightly better than expectations, 3.9 percent from a year ago, expectations were about 3.4 percent. Although that
was lower than China's official target.
Retail sales for the month of September grew a modest two and a half percent that was also lower than most economists were expecting, that
expectation was 3.3 percent.
On industrial production, however, that actually beat expectations, Zain. Those numbers coming in at 6.3 percent. The expectation was 4.5 percent. So
it was a bit of a mixed bag, although the consensus certainly among critics, but the consensus seems to be that it was an underwhelming report.
ASHER: All right, Rahel Solomon live for us there. Thank you so much.
And when Xi came to power about 10 years ago, the Chinese economy was expanding at breakneck pace, some economists expected it to overtake the US
within just a few decades.
Since then though, growth has slowed, a crackdown on tech companies as Rahel was just talking about has hurt that sector's outlook. Anti-democracy
policies in Hong Kong are leading to a talent exodus, and Zero COVID has made China's recovery from the pandemic slow and unsteady.
At this rate, some say China won't catch up to the US economy. until at least 2060.
Joining us live now is William Lee, Chief Economist at the Milken Institute.
William, thank you so much for being with us.
So it's clear, just in terms of what we know about what the future holds for China and what Xi's policies are, it is clear that security, politics -
- these sorts of things, ideology as well -- these sorts of things seem to rank higher than the economy.
What does that mean going forward?
WILLIAM LEE, CHIEF ECONOMIST, MILKEN INSTITUTE: What really surprised the markets was what happened during the Party Congress.
We all knew that Xi Jinping was going to secure his third term, we all knew that he was consolidating his power base, but the shock was the very public
rejection of Hu Jintao. And I think that's what caused people to really get the message, a very clear message from Xi Jinping that there is no longer
opposition here. My policies are in place and they will stay in place.
And I think that's the spookiness of a market -- that has caused the Hong Kong markets to drop in and people to reconsider very clearly their
investment policies for China.
Western investors now are thinking, well, if I want to diversify into Asia, I had better places to go with less political risks -- Korea, ASEAN
countries -- where they are already recipients of the China exodus of white manufacturing.
ASHER: So just in terms of what's going to happen going forward, I mean, the fact that you have possibly the second largest economy in the world now
pivoting to a much more State-led model. What are the implications of that, do you think, William?
LEE: Well, I think it says a lot about the success of socialism with Chinese characteristics. The Xi policies with Zero COVID tolerance, and the
shutdown of their engines of growth, the internet companies, domestic demand, domestic growth is going to flounder for quite some time.
And in order to preserve the mandate from heaven that the Chinese Communist Party has claimed for the last several decades, they're going to have to
show the people of China that they can do something for them, that has never been done before.
So I think going forward, the domestic policies will have to struggle with bolstering growth, but foreign policy will have to focus on raising
nationalism. And the great way to do that, the vehicle that they're choosing to do that with is Taiwan.
So, we're going to hear much more aggression on their policies toward Taiwan and the reunification of Taiwan, which has been the goal of China
ever since China opened.
That was the very first question that Joe and I had asked Richard Nixon, what are we going to do about Taiwan? And that continues to be the pressing
question for every Chinese leader.
ASHER: Yes, focused much more on domestic policy on Taiwan, as you point out a lot less on the economy.
I want to talk about market reaction because you touched on that just a minute or so ago. This idea that Chinese stocks fell about three percent or
so, what do you make of how much Chinese stocks fell by just given that there was a lot of pressure placed on institutional investors actually not
to sell during this period because it is so politically sensitive?
[15:25:13]
LEE: I know. I think every Western investor has always said, "My God, what a huge domestic market. If I can just sell one of my products to just
one person there, I would make billions." And I think that's the image that has driven Western investment for decades.
But now, Xi Jinping has told every investor, this domestic market is ours. It belongs to the Chinese investor and the profits of investing in our
country is going to go to the Chinese people. If you're going to help us further that goal, then we will let you in; but if you're not furthering
that goal, if you're trying to exploit us the way foreigners have exploited China for decades, stay out.
I think that's the clear message that has caused the stock markets to winch and react so badly.
ASHER: And your perspective on where we are with economic growth? I mean, obviously, economic growth has slowed down quite significantly under Xi
Jinping. However, we did get the GDP -- third quarter GDP number coming in at 3.9 percent. Certainly much lower than in the past, but still slightly
better than expected. What do you make of that number?
LEE: Well, Xi Jinping came in with some tailwinds behind him because the demographics were in his favor. There was a huge young population of cheap
labor. But right now, we've just discovered from the latest demographic data, that Chinese population has stopped growing. And that means that that
source of cheap labor is starting to top out and the only way to sustain growth is through productivity.
Right now, I think China is going to suffer from the difficulties of improving productivity without the aid of the marketplace, without the aid
of their fast growing companies like Tencent and Alibaba and that will be a huge challenge for the Chinese leadership going forward.
SOARES: All right, William Lee, live for us there. Thank you so much. Appreciate it.
A failed Truss mini budget and a dreary future for the UK economy, the pressure is on for Rishi Sunak's government. My colleague, Isa Soares will
talk about the promises he made earlier this year in his run for Prime Minister the first time around.
That's next.
(COMMERCIAL BREAK)
[15:30:20]
SOARES: Hello. I'm Isa Soares. There's more QUEST MEANS BUSINESS in just a moment when the celebrations won't last long for Rishi Sunak. His first
task as prime minister will be rescuing the British economy from a painful recession.
And NATO says Moscow may be claiming that Ukraine is ready to use a dirty bomb as a pretext to escalate its own violence. Before that, the headlines
this hour.
Brazil's President Jair Bolsonaro faces off against left-wing leader Lula da Silva in the country's presidential runoff election on Sunday. They were
the -- they were the leading vote winners in the first round, if you remember earlier this month. Although neither reached the 50 percent
threshold to win outright. Polls of Lula leading by just a few points.
A car bomb on Sunday at a hotel in southern Somalia left nine people dead before security forces killed the attackers. The Al-Shabaab terrorist group
linked to al Qaeda claimed responsibility for the attack. A meeting to discuss how to combat Al-Shabaab was being held at the hotel.
Police say at least two people were killed and six more injured in a shooting at a high school in St. Louis, Missouri early on Monday. The
suspected shooter was shot dead in a gunfight with police.
Jury selection began today for the Trump organization's criminal trial on charges of tort tax fraud and grand larceny. Former U.S. President Donald
Trump isn't facing charges in the case and likely won't be implicated in any wrongdoing. Trump Organization lawyers and the Manhattan D.A.'s office
were unable to agree on a plea deal after the talk weeks ago.
Police in Kenya say officers shot a Pakistani journalist dead when his car drove through a roadblock on Sunday night. Arshad Sharif had fled Pakistan
in August after being charged with sedition. The Pakistan prime minister says he has asked for a fair as well as transparent investigation into
Sharif's death. A police oversight group in Kenya and is also looking into it.
Well, here in the U.K., gilts rallied on the country's new change of leadership. The 10-year yield fell on Monday, an indication that investors
expect a bit more stability under Rishi Sunak. The yield rose right after Boris Johnson backed out of the race, that says something in itself. Then
they came back down once it became clear that Sunak will not face any opposition. Well, this summer, if you remember Sunak campaign for the job
on a much more different platform than Liz Truss.
He focused on fiscal prudence and really minimizing government debt. He told the public that he was ready to make tough decisions to get the U.K.
economy back on track. He addressed inflation at his final hustings. Have a listen.
(BEGIN VIDEO CLIP)
RISHI SUNAK, NEXT PRIME MINISTER OF BRITAIN: Other than energy bills, the thing that probably is the biggest challenge is finding workers and it has
been for a while and that labor inflation is something that we're experiencing that the rest of Europe is not. So those are two significant
reasons. Now, look, I can't give you a guarantee that it's going to fall straight away. I think this is the biggest challenge that we face.
But what I can guarantee you is that given that I have consistently said that inflation is the number one priority facing our country. It will be my
number one priority. I've been saying that since the beginning of this campaign. I can guarantee that it will fall far faster with my plan than it
will with anyone else's.
(END VIDEO CLIP)
SOARES: Anna Stewart is in London for more. So Anna, given what we heard in the hustings back in the summer, what kind of policies can we expect here
from Mr. Sunak?
ANNA STEWART, CNN REPORTER: Well, there are two key takeaways. We go all the way back to that first leadership contest this year with Rishi Sunak.
One was tough love. Yes, this prime minister would like to lower taxes. He's got plans to do that maybe by 2029. But he made really clear in that
contest that he would be looking to get a grip on inflation before even looking at big tax cuts.
So that is something on his agenda. He said in that soundbite that you played that he wasn't expecting inflation to go down immediately. It
certainly hasn't. It's now in double digit figures. So that is probably priority number one. Secondly, he did trash Trussanomics before she was
even prime minister. He said, if you go ahead with massive spending and huge tax cuts, the markets will not like it, they didn't.
So as the ultimate told you so moment, really, but what does he do next in terms of economic policy? Now he actually does have the top job. And of
course we didn't really hear anything from him in this most recent leadership contest, nothing actually.
[15:35:06]
Well, he may want to just see what happens. At the moment this is going to be new government very much in damage control motion, I would say. Jeremy
Hunt is the newest of all the new chances we've had. We are burning through them. Here's essentially reversing Trussanomics, reversing the plan,
reversing many of the big tax cuts that were laid out. We are expecting a fiscal statement to be laid out next Monday on Halloween.
Jeremy Hunt may well be the chancellor still in place, then to do that. So I think we'll have to see what happens with that fiscal statement. Whether
the books are balanced, whether or not more reversals need to be made. But I would expect from this conservative government a lot of tough love ahead.
SOARES: Tough love and retrying to steady your ship, isn't it? Exactly what you have outlined. Jeremy Hunt to uniform, what I've been hearing by guests
here throughout the day, Anna, expectation that he will remain chancellor. He spoke last week of -- and I'm going to quote him here, "decisions of
eye-watering difficulty." Just talk us through, you know what decisions (INAUDIBLE) because at the moment, there's lots of unity within the party.
But that could change of course, depending what we hear from Sunak and from Hunt.
STEWART: Well, Jeremy Hunt was very much brought in as a chancellor on almost a war footing, I would say. Given that U.K. assets had sold off so
sharply as a result of Liz Truss and the outgoing Chancellor Kwasi kwarteng's so-called mini budget. So a lot of what he was doing was both
reversing those policies but also doing it swiftly just to reassure markets to prevent any further sell off.
We've actually had a tweet from Jeremy Hunt in the last couple of hours saying, congratulations to Rishi Sunak, our next prime minister. This is a
time for honesty about the huge economic challenges we face and courage in addressing them. We have a prime minister who can be trusted to do just
that and give us all confidence in the huge potential of our country. So it certainly suggests I imagine they've had a conversation that a lot of this
will be about confidence, about continuing what with what they've done.
Since Jeremy Hunt to go but we have seen quite a reversal in terms of the gilts market, U.K. bonds and also the pound. And that has continued. Today
we saw slight market reaction this morning on U.K. government bonds. I think it's much relief that Boris Johnson was out of the race as much as
Rishi Sunak was going to win it.
SOARES: That says so much. Anna Stewart there for us. Thanks very much, Anna. Appreciate it.
Now, a new survey of business activity suggests the U.K. is barreling toward a recession. The Purchasing Managers' Index has now contracted for
three straight months. October strop was the sharpest in the two years and really it just outlines how much work really Mr. Sunak has ahead. Business
expectations are now the lowest since April 2020. The number of profit warnings from Footsie-listed companies also bodes pretty poorly.
There were 86 during the third quarter. The most since 2008 and the great recession. That number as you can see on your screens up nearly 70 percent
from the same period last year. George Buckley is the U.K. chief economist at Nomura. He joins me now from Gerrards Cross, England. George, great to
have you on the show. Before we talk about those three -- Q3 profit walls that what you're seeing and what this paints. How are the markets been
reacting you think to news of Mr. Sunak?
GEORGE BUCKLEY, CHIEF U.K. ECONOMIST, NOMURA: Well, very positively so far. We haven't seen any surgeon in the currency. But certainly we have seen a
fairly sizable drop in interest rates. And as you mentioned just earlier 10-year government bond yields are down quite significantly. What's
interesting, though, when you look at how much they're up still relative to the start of -- he start of August, it's still quite a lot.
It's almost two percentage points. That's more than in Germany, it's more than in the U.S. So there's still work to be done to convince markets that
we're on the right track.
SOARES: Still work to be done to convince market. So George, what does the next chancellor when assume now, for now, it's Jeremy Hunt. What does Mr.
Sunak have to say or do I should say to convince markets that he's got the right plan for the country here?
BUCKLEY: Well, we saw when Mr. Hunt announced what he was going to do to reverse a lot of what Liz Truss put in place. That really did placate the
markets. And I think that they will continue along those lines, saying that they need to reduce spending, they need to increase taxation. None of that
is going to be pleasant. It's not an easy message for conservatives to hear. But it's something that they'll have to do.
So I think a combination of tax increases, or at least not cutting taxes and also cutting spending and making efficiency gains.
SOARES: Yes. And what we've heard, I think it was over the weekend, the former governor of the BOE, Mervyn King was warning of austerity.
[15:40:00]
How is that going to sit with the people here?
BUCKLEY: Well, I don't think very well but I'm not sure they have a huge amount of choice in this matter. If they don't go down the austerity route,
then I imagine you will -- you will see further increases in interest rates which will do more damage to the economy. So that caught between a rock and
a hard place. If they -- if they don't do it, they get higher interest rates. If they do do it, they get weaker economy because of lower
government spending and higher taxes.
SOARES: And George, just explain to our viewers around the world, of course, Rishi Sunak is the incoming prime minister but he is, of course,
he's got a lot of experience, I think it's fair to say, as chancellor. How do you rate him?
BUCKLEY: Well, I think he'll do a good job. I think, you know, the markets are looking at him as being somebody who's got his head firmly screwed on
his shoulders. He's a competent and safe pair of hands. I think the market will accept that. And that's good news. So, I think there is a good chance
of further interest rate falls to come on for that further yield falls to come. I don't think the Bank of England will be needed to be raising
interest rates as much as the markets expect, for example. So I think that's all positive. And I think the markets will take it positively.
SOARES: Yes. I mean, it really is a question of trying to stabilize the market steady the ship. And we've seen that today already. Conclusion, not
just so much of Rishi Sunak. But as my correspondents preview in the previous hour, just said that Boris Johnson wasn't in the picture. But in
terms of what we just outlined, survey of business activity, the U.K. barreling towards the recession. I mean, this is -- the numbers are quite
bleak.
Up nearly 70 percent from the same period last year. So profit warnings from Footsie listed companies. That paints a picture of what we're facing
in the next -- in the next year or so, George.
BUCKLEY: It does. And it's probably not surprising at all, because we've seen inflation rise to double digit or at 10.1 percent. At the moment, we
have consumer confidence, which is not far off its record lows. We have retail sales falling. So we're seeing demand, a much weaker picture of
demand in the U.K. And I think it's important to say it's not just the U.K. which is experiencing this. Inflation is high in many countries, including
in across Europe.
So, I don't think we should expect that profit warnings be confined to the U.K. I think this is a global issue. And maybe in some countries, it will
be worse but -- and especially those countries which have suffered more from the war with Russia and Ukraine which has obviously increased prices
even more than they were increasing to start with. But this combination of weak confidence and high inflation is going to do untold damage to the
economy.
And that's why most of us are expecting a recession which could last a year, two years very difficult to tell. The Bank of England thinks it could
be a couple of years recession. We think it might be just over a year. But the point is, it's going to be a recession. It seems very difficult to see
how we can avoid a contraction in economic output.
SOARES: Very good point, George Buckley. The chief U.K. economist at Nomura. Thanks very much, George. Appreciate it.
BUCKLEY: Thank you.
SOARES: Now Russia accuses Ukraine of plotting to deploy a dirty bomb without any proof. And Western officials are warning Moscow not to use this
as a pretense for more violence. Zain Asher speaks to CNN's Fred Pleitgen in Ukraine next.
(COMMERCIAL BREAK)
[15:46:13]
ZAIN ASHER, CNN INTERNATIONAL ANCHOR: NATO is telling Moscow not to use its claims that Ukraine is preparing to use a dirty bomb as a reason to
escalate its war against the country. Russia's defense ministry said on Monday, it has information Kyiv is planning to detonate a low yield nuclear
weapon on its own territory and frame Russia for the attack. Moscow has provided no evidence to back up that claim.
The European Union says it supports Ukraine's requests, experts from the U.N.'s nuclear watchdog investigate what it calls Russia's latest false
allegations. Fred Pleitgen joins us live now from Dnipro, Ukraine. So Fred, I think the fear is that Russia is going to sort of use this as a pretext
for more escalation here.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, that certainly is the theory here in Ukraine. And it also seems as though many
of Ukraine's western allies as well, it was quite interesting because Sergei Shoigu, the Russian defense minister, all of a sudden came forward
with this or started coming forward with this yesterday when he had phone calls and asked for these phone calls specifically from the Russian side
with the defense ministers and defense secretaries of the U.K., France and also the United States as well.
Making essentially the same accusation that the Russians claimed to have information that the Ukrainians were plotting to use what the Russians
called a dirty bomb, which obviously is essentially a conventional bomb that would set free radioactive material and could obviously contaminate
large areas of anywhere that it detonates. Now, those three countries then banded together and said that this is transparently false information that
could be used as an escalation on the part of Moscow.
And if you can see, right now, the Ukrainians really trying to take the initiative on this as well, they've come forward and they've asked the
International Atomic Energy Agency to specifically look at the places where Moscow today has said they believe that the Ukrainians are trying to
develop this device and ask those them to come there and inspect those places to see for themselves that nothing illicit is going on in those
places.
The country's president Volodymyr Zelenskyy, he also came out and actually ripped into the Russians and said, if the Russians say that this is
something Ukrainians are plotting, it's probably something that the Russians are plotting themselves. So, you can see the Ukrainians definitely
trying to take the initiative on this. And the western countries like the U.S., like the U.K. and France, also saying they're not going to fall for
this and that certainly Moscow really shouldn't escalate this whole situation any further.
They really fear that there could be an escalation. It's also the word that the Russian defense minister actually also used. He called it a possibility
for an uncontrolled escalation, especially now that the Russians are losing ground in the south of the countries, Zain.
ASHER: Yes. And just sort of speaking of which, how are the Russians preparing for this massive Ukrainian push to recapture Kherson?
PLEITGEN: Yes. That's really the big question right now. It's almost -- it's almost impossible to get any real time information or accurate
information as to what exactly is going on there. There was one resident of the town of Kherson which was essentially the big prize of the Ukrainians
thereafter in -- there in the south of the country who's saying that that town is now almost a ghost town.
But there's a lot of residents who are leaving that town. Obviously, the Russians have told civilians to leave that town as fast as possible.
However, the Ukrainian military intelligence has a very different view of things. They say that they believe that the Russians are actually bringing
more military forces into that area, possibly to make some sort of stand or maybe launch some sort of counter offensive or something like that. Very
difficult to say.
However, there was a call up today by one of those Moscow-installed officials from that area, urging men who are still their, civilian men to
join a Territorial Defense Force on the side of the Russians. Now it's unclear whether or not anybody's actually going to do that but it could be
a sign that maybe the Russians are digging in there.
[15:50:04]
ASHER: All right. Fred Pleitgen live for us there. Thank you. All right. Rishi Sunak has been handed the reigns as the next U.K. prime minister. And
the challenge ahead of him is huge. Fix the economy and unite the Conservative Party. Isa Soares speaks to Richard Quest about the depth of
that challenge.
(COMMERCIAL BREAK)
SOARES: Welcome back, everyone. Well, it's the end of I think we can call a monumental day in British politics. And a few hours from now Rishi Sunak
will get the job after an audience with King Charles. The Conservative Party hopes its new leader can bring some much needed stability to Downing
Street and to the markets and indeed to politics in this country. Richard Quest is joining me now from Riyadh.
And Richard, when you and I spoke on Friday, our heated discussion on -- in the studio you called it, didn't you?
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Whereas, I don't think that was rocket science on my part. I think you've -- Boris Johnson was always going
to be a bit dodgy. And was always going to do "the right thing." And withdraw is necessary. By the way, I'm here in Riyadh at FII, which is one
of the largest investment conferences in the world and the most significant.
QUEST MEANS BUSINESS comes from here. For Rishi Sunak, there are really two issues. Firstly, he's got to rebuild the confidence of markets and of
investors under business. That should not be too difficult. He is a former chancellor, a former chief secretary to the Treasury. However, his second
task, I think is -- will be more difficult. Although the parties united behind him, he is still a new politician.
He's only been an M.P. for six or seven years. That's not deep knowledge of backstabbing and all the usual stuff that you have to do to be a good
politician.
SOARES: Yes. And what I've been hearing today from various Tory, M.P.s quest, Richard is unity, unity, unity. That signifies one thing perhaps
there isn't much unity within the party. So you do see that being a huge challenge in the months ahead.
QUEST: Immediately now and in the months ahead know, if they don't unite, then it will be lemmings, turkeys voting for Christmas, whatever analogy
you want. They will walk over the electoral cliff. So there is a huge emphasis.
[15:55:08]
But Sunak is liked but not well liked. He comes from Wall Street, he is exceptionally wealthy through his wife's wealth, that will create some
tensions at a time of great recession. The U.K. has never really had a prime minister worth the best part of a billion pounds, 760 if you want to
be precise. And I think that is going to be slightly tricky. That all said, he is the man who can, at least in the short term, restore the credibility
of the U.K. government, vis-a-vis markets and borrowing and taxation and all the stuff that he'll have to deal with.
SOARES: Like you said, he is our first hedge fund prime minister. Many would say and you pulled it as well, you said it as well, that he's the
best person for the job, Richard. So, come in the fiscal outline we'll have at the end of the month, what are you expecting? Are you expecting to hear
similar things in terms of keeping inflation tight here, given we've got 10.1 inflation right now?
QUEST: Absolutely, absolutely. If you now -- let's look back at what he said during the leadership campaign, the first time round. He's all about
sustainability of debt. He's all about ensuring reliability. So we will see as much of a reversal of the Truss proposals as he can. Now most of them
have already gone, by the way as a result of Jeremy Hunt. I think he'll leave Jeremy Hunt, I could be proven wrong on this within 24 hours.
But my gut says Jeremy Hunt stays at Treasury if only because to move him would just be too damaging on top of everything else. No, no, I think he's
going to be stability is going to be the key.
SOARES: Richard Quest live from Riyadh in Saudi Arabia. Thank you very much, Richard. And that does it for me this hour. There are just moments
away now from trading on Wall Street. Zain will be back with the final numbers and that closing bell right after this.
(COMMERCIAL BREAK)
ASHER: All right. There are just moments left to trade on Wall Street about two minutes or so. In fact, let's take a look and see how the big board is
doing. The Dow is up almost 400 points at the start of the week. Investors were riding high Friday on reports that some Fed officials are ready to
ease up on rate increases. Some of that optimism appears to have carried over for a second straight session.
Let's take a look and see how the Dow components are faring, really broad gains here across the board. As investors hang tight for a big earnings
week. Microsoft reports after Tuesday's close, it's up nearly two percent. Apple report on Thursday. They're among the leaders here. Chevron is near
the bottom as oil falls. Boeing, McDonald's, Coca Cola also reporting this week as well.
Chinese stocks listed in the U.S. are also taking some hits after Xi Jinping was appointed leader for another five years. The electric carmaker
Nio is down 17 percent on the New York Stock Exchange. Alibaba is off 14 percent. It's now trading lower than its IPO price of $68.00 a share.
[16:00:09]
All right. My friends that is it. QUEST MEANS BUSINESS. I'm Zain Asher in New York. The closing bell is ringing on Wall Street as I speak. And "THE
LEAD" with John Berman starts right now.
END
