European stocks were deep in the red on Monday after Credit Suisse shares plunged to fresh lows, raising concerns about the health of the financial sector in Europe.

The Swiss bank tried to assuage fears about its health in a memo to employees and in a round of phone calls to investors and clients over the weekend, according to people familiar with the matter.

Credit Suisse shares tumbled 9% early Monday and are down nearly 30% over the past month. Spreads on its credit-default swaps, a type of insurance against default, rose to their highest level of the year on Friday. The deteriorated market condition indicates that Credit Suisse could struggle to raise new shares to pay for a planned restructuring and that its funding costs could rise sharply.

Read: Credit Suisse Seeks to Calm Market Jitters

Meantime, news of the U.K. government's decision to scrap a plan to cut taxes for wealthiest earners provided support to U.K. assets, with the pound and gilts rising.

"This move is rather symbolic, being less about the amount of money it will save and more about the poor signal it had delivered of ideological tax cuts," said Chris Turner, an analyst at ING Bank.

Read: U.K. Makes Major U-Turn on Tax Cuts

Economic Insight:

Berenberg has cut its forecasts for the U.K. economy in the near term due to the sudden tightening of financial conditions triggered by recent policy announcements. It has lowered its 2023 call to a 1.5% contraction from the 1% GDP drop previously forecast.

After a peak-to-trough recession of 2.5%, deeper than the 1.9% previously forecast and lasting three quarters from the third quarter of 2022 to first quarter 2023, Berenberg has raised its 2024 call to 2.1% GDP growth from 1.9%.

"Of course, a more pro-growth approach to taxes and regulation could still support U.K. growth potential in the long run if the tax cuts are sufficiently funded," Berenberg said.

U.S. Markets:

Stock futures were starting the final quarter on a muted note as fears about the impact of tighter Fed policy continued to suppress sentiment.

The S&P 500 has fallen for three consecutive quarters, off 24.8% over that time, and it lost 9.3% in September, the biggest monthly fall since March 2020.

The U.K. tax U-turn news helped push sovereign bond yields lower. The benchmark 10-year Treasury dipped 2.8 basis points to 3.803%.

Stocks to Watch:

Tesla's deliveries rebounded to hit a record in the most recent quarter, though the figure was short of Wall Street's forecasts. Its shares slid more than 5% premarket.


TV channels owned by Walt Disney are back on Dish Network's satellite broadcasting and streaming platforms after the two companies reached a tentative agreement on a new contract. Dish shares added 0.5% premarket.

Economic Data:

Updates set for release on Monday include the S&P U.S. manufacturing PMI report for September, the ISM manufacturing index for September and the construction spending report.


The U.K. government backtracking on its pledge to cut the 45% rate of income tax lifted the pound, but this boost is likely to be limited, MUFG said.

The U-turn is "another small step to help restore investor confidence in the U.K.'s public finances although it is unlikely to be sufficient on its own," MUFG said. The measure is only a relatively small element of the recent mini-budget--costing GBP2 billion versus the total cost of the tax-cutting package at GBP45 billion--that sent the pound sliding, MUFG added.

GBP/USD rose 0.3% to 1.1207, having hit a high of 1.1280 earlier Monday but MUFG doesn't believe it has much room to rise further.


The euro has recovered somewhat against the dollar over recent sessions but this isn't unusual given its low levels and global risk aversion, Danske Bank said.

"Indeed, we have seen many times over the recent year that EUR/USD may very well go up during substantial global risk aversion if this does not emanate directly from Europe [e.g. the war in Ukraine]," Danske Bank said.

The key release for EUR/USD this week is Friday's U.S. nonfarm payrolls report any weakness in the data could add further downward pressure on the dollar, Danske said.


The dollar edged lower against a basket of currencies but its declines are likely to be short-lived given the prospect of another strong nonfarm payrolls report, ING said.

"Our team looks for a solid 200,000 increase in jobs and the unemployment rate staying low at 3.7% [in September]-- both pointing to another 75 basis points [interest rate] hike from the Federal Reserve on November 2," ING said.

Foreign exchange interventions by Asian authorities along with the Bank of England's bond market intervention are potentially behind the dollar's correction lower but this move will be limited, ING added.


U.K. borrowing costs should calm after the government announced its tax U-turn, although questions remain over credibility, Hargreaves Lansdown said.

"A big part of the questionable battle plan to try and stimulate growth is being ripped up, which may actually help calm the feverish rise in borrowing costs for companies, homeowners and the government."

The yield on 10-year gilts fell around 10 basis points to dip just below 4% after the announcement, down from last week's peak around 4.554%, according to Tradeweb.

However, the government's credibility at a time of economic uncertainty "has been lost, perhaps irrecoverably."


Oil prices rose more than 3% ahead of this week's OPEC+ meeting at which the cartel is expected to debate a one million barrel a day production cut.

If the group goes ahead with the cut it will be the second in as many meetings, though a one million barrel a day reduction in output would be ten times as large as its most recent cut. Members of the group are split, however.

DNB Markets said the cartel is currently missing its output targets by 3.5 million barrels a day due to tight spare capacity and poor infrastructure. A one million barrels a day reduction would likely translate into only a 400,000 barrels a day decline in actual output.

With most members of the cartel underproducing "the majority of the group will feel no pain by supporting a production cut," DNB said.

Read: OPEC+ to Weigh Production Cut to Bolster Oil Prices

Other Market Comment:

Pictet Wealth Management said reduced gas inflows from Russia means Europe will rely more on existing storage capacity and consumption-reduction measures to get through the winter.

EU countries have successfully increased their reserves ahead of winter, with inventory levels hovering around 88% of maximum capacity, Pictet noted. However, should Europe experience a colder-than-average winter, gas consumption would rise, depleting gas stores quickly and leading to rationing.

Pictet sees a 25% probability for a cold winter with a complete shut-off of Russian gas and 60% for a shut-off of gas inflows combined with a mild winter. There is a 15% probability of Russian gas inflow remaining at their current level, with a mild winter, Pictet's third scenario.


Metals edged lower, as growth jitters lingered and with analysts still mulling what impact an LME ban on Russian metals would have on European markets.

Goldman Sachs said a ban would make it harder, but not impossible, for Western buyers to obtain Russian metals, with aluminum likely to be the most affected by any restrictions.

Trading volumes were muted, with Chinese markets closed for a weeklong holiday.

Read: LME Ban on Russian Metal Wouldn't Halt Imports




Credit Suisse Seeks to Calm Market Jitters

Credit Suisse Group AG tried to assuage fears about its health in a memo to employees and in a round of phone calls to investors and clients over the weekend, according to people familiar with the matter.

Credit Suisse shares tumbled 9% early Monday and are down nearly 30% over the past month. Spreads on its credit-default swaps, a type of insurance against default, rose to their highest level of the year on Friday. The deteriorated market condition indicates that Credit Suisse could struggle to raise new shares to pay for a planned restructuring and that its funding costs could rise sharply.


U.K. Government Abandons Plan to Cut Rate of Income Tax for Top Earners

LONDON-The U.K. government Monday said it won't proceed with the removal of a 45% top rate of income tax, scrapping a key element of a plan announced late last month that triggered turmoil in the country's financial markets and an intervention by the Bank of England.

The decision to retain the tax rate on high incomes was announced during the ruling Conservative Party's annual conference, where a number of lawmakers had expressed their opposition to the move. But the government was defending the measure as recently as Sunday.


ConEd Agrees to Sell Clean Energy Business for $6.8 Billion to RWE

Consolidated Edison Inc. has agreed to sell its renewable energy business to German energy company RWE AG for $6.8 billion, the companies said Saturday.

The deal nearly doubles RWE's renewable energy portfolio in the U.S. and will make it the second-largest solar operator in the country, the company said in a statement. ConEd's portfolio includes more than 10 gigawatts of renewable projects in operation or under development.


Naspers' $4.7 Bln Agreement to Acquire BillDesk Through Prosus Terminated

Naspers Ltd. said Monday that a $4.7 billion agreement to acquire BillDesk through its Prosus NV subsidiary has been terminated automatically, as certain conditions weren't fulfilled by the long stop date.

The South African investor said on Aug. 31, 2021 it had agreed to buy Indian digital payments provider BillDesk through Prosus NV's subsidiary PayU Payments Private Ltd.


OPEC+ to Weigh Production Cut to Bolster Oil Prices

OPEC+ is set to consider Wednesday its most drastic reduction of production since the pandemic in order to help prop up falling oil prices, a move that could put pressure on global economic growth.

The Organization of the Petroleum Exporting Countries and Moscow-led allies, collectively known as OPEC+, is considering a cut of more than 1 million barrels a day, delegates in the group said.


U.K. Prime Minister Liz Truss Admits Mistake in Communicating Economic Plan

LONDON-U.K. Prime Minister Liz Truss said that her government could have done a better job preparing financial markets for a surprise tax-cut plan funded by increased debt, but otherwise defended the package of economic measures.

"We should have laid the ground better," Ms. Truss said in an interview with the British Broadcasting Corp. on Sunday. It was her first acknowledgement that her signature policy since taking office last month had fallen flat among investors, voters and some members of her own party.


Britain's Financial Disaster Is a Warning to the World

A toxic mix of politics, inflation and higher interest rates is threatening the financial system in the U.K., sending a shock wave through global markets and providing a warning to governments everywhere of the dangers of the new economic era we are entering.

A surprise tax cut by the new British government just over a week ago sparked investor concern about the country's fiscal credibility and crashed both the pound and the market for U.K. government bonds, known as gilts.


U.K.'s Central Banker Faces Inflation, a Financial Crisis and His Own Government

LONDON-In late August, Bank of England Gov. Andrew Bailey was at a symposium in Jackson Hole, Wyo., when a New York University economist flagged a problem. In a world where central banks are quickly raising interest rates to calm inflation, they might face an unexpected crunch in financial markets and need to flood them with liquidity to prevent a market meltdown.

Mr. Bailey, a bookish, soft-spoken Brit, stood up in the hall and said such an about-face would be a tough sell to investors and the public since it would undermine the fight against inflation. It "is a very difficult message to get across to the outside world," he said.


Probe Into Nord Stream Pipeline Damage Faces Hurdles at Sea, Ashore

When Bjorn Lund's team at the Swedish National Seismic Network first recorded tremors in the Baltic Sea, it didn't initially notice anything unusual.

The area, off the coasts of Denmark and Sweden, is used for naval exercises by both countries. The institute, part of Uppsala University, regularly records the impact of explosive blasts there.


Russia's Gazprom Suspends Gas Flow to Italy

Russian gas giant Gazprom PJSC said it suspended its natural-gas deliveries to Italy over the weekend after it didn't receive authorization for the pipeline flows via Austria.

It wasn't immediately clear whether the interruption was a temporary bureaucratic glitch, or whether Italy has now joined the growing list of European Union countries that have been cut off from Russian gas.


Ukraine Gains Full Control of Lyman, Days After Putin Claimed Russia Rules There

KYIV, Ukraine-Ukrainian President Volodymyr Zelensky said the eastern city of Lyman had been cleared of Russian forces and that Ukrainian flags were flying again, scoring a symbolic military and political victory against Moscow on the very territory President Vladimir Putin said last week Russia would annex.

Russia's Defense Ministry said it was withdrawing troops from the city following days of advances by Ukrainian forces to surround them, but Moscow kept several thousand troops there, most likely encircled until fighting ended.


Iran Protesters Circumvent Internet Disruptions

Protesters in Iran are finding new ways to challenge the Islamic Republic after the government imposed sweeping disruptions to the internet that have affected the movement's ability to use social media to spread its message.

In places such as Tehran and Ahvaz in Southwestern Iran, demonstrators are passing out paper leaflets with details of planned protests and antigovernment statements, according to social-media footage. Others are spraying graffiti on the walls, with slogans like "Woman, life, freedom, " which is one of the trademark chants of the demonstrators.



Central Banks' Higher Rates, Bond Sales Clash With Government Needs

FRANKFURT-Central banks and governments are on a collision course.

For 15 years, central bankers around the world worked hand in glove with elected leaders to bolster economic growth and inflation.


Inflation Keeps the U.S. From Stepping In to Slow Dollar's Rapid Rise

WASHINGTON-U.S. policy makers aren't likely to take action to slow the dollar's rapid rise despite rising risks of global financial turmoil, analysts say, largely because a strong greenback helps fight domestic inflation.

The U.S. dollar has soared in value as the Federal Reserve raises interest rates to fight the highest U.S. inflation in decades and investors move money into dollar-denominated assets. The WSJ Dollar Index, which measures the dollar against a basket of other currencies, is up roughly 16% so far this year.


Cargo Shipowners Cancel Sailings as Global Trade Flips From Backlogs to Empty Containers

Ocean carriers are canceling dozens of sailings on the world's busiest routes during what is normally their peak season, the latest sign of the economic whiplash hitting companies as inflation weighs on global trade and consumer spending.

The October cancellations are a sharp reversal from just a few months ago, when scarce shipping space pushed freight rates higher and carriers' profits to record levels. Last October, companies like Walmart Inc. and Home Depot Inc. were chartering their own ships to get around bottlenecks at ports to meet a surge in demand for imports.


China Stocks Near a Bottom, But Recovery Path Unclear -- Talking Markets

After months of roller coaster trading, Chinese stocks have dropped back to their lowest levels of the year. A path to full recovery remains unclear, but stocks with exposure to government stimulus efforts or defensive earnings could offer opportunities, analysts say.

The Shanghai Composite and CSI 300 indexes fell 11% and 15%, respectively, in the third quarter, leaving both benchmarks at their lowest levels in about five months. Hong Kong's Hang Seng Index lost 21%.


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(END) Dow Jones Newswires

October 03, 2022 05:43 ET (09:43 GMT)

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